Monday, 13 July 2009

RBS & Lloyds to public sector for years

The UKFI has outlined it strategy for the two banks it bought last year (well, 3 banks really if you include HBOS). The answer is sensible, but not pretty.

Due to the high prices paid relative to their current worth today, these banks are going to be in state hands for a long-time to come. It looks like it is expected to take them 5 years to earn enough to be re-privatised.

The talk of profit for the taxpayer is duplicitous too; I doubt the full calculations of the costs of increasing public debt so much are factored in. They may sell out of RBS at 70p a share one day when their average buy-in was 65p and claim a nice profit. But it won't reflect the cost of the public finances of administering the banks for so long, borrowing the gilts etc.

However, it is still a sensible move in that trying to get out of the stakes in the short-term would cause uncertainty in the markets. What is done is done and best to live with it. We don't need any more great ideas like telling the world we are going to sell all our gold and sinking the market in advance of the sale!


Mermaid of Moorgate said...

All hail the lender, the investor and the owner of last resort....

CityUnslicker said...

HBOs got into trouble for pig and pork; i.e. lending to and taking equity stakes in property businesses.

Look what the government is doing...

Mark Wadsworth said...

Typical bloody 'one-sided economics'.

The money has already been lost, it's gone. Whether the government now hangs on in the vague hope of making a true profit on the current market value in future is neither here nor.

If they are so sure that they will 'make a profit for the taxpayer', they could just dish out the shares to each taxpayer, and then each taxpayer can make up his own mind whether to hang on to the shares in the hope of making a profit, or whether to dump them pronto.

Pogo said...

Mark... Can you even begin to imagine the trult biblical f*ck-up that would ensue if HMG decided to distribute the bank shares to "taxpayers" - apart from the 5 years it would probably take to set up the commission to decide what exactly constituted a "taxpayer"?

Better that RBS and Lloyds be trickled back into the market as and when it makes reasonable economic sense so to do.

Mind you, I can't see what all the palaver is about with respect to the UKFI's statement about how "challenging" it's going to be... I could do it in ten minutes a day using a laptop - but that presumably wouldn't have sufficient gravitas for a government operation. As it is, the idiots will probably dump them in huge tranches, pre-announced, either to their favoured buyers or just bugger the market up.

Mark Wadsworth said...

@ Pogo, agreed, there is nothing that this particular government can't screw up, but it is possible (see Tories 1980s, demutualisation 1990s) to do this type of thing in a reasonably orderly fashion.

I was given my £1,800's worth of Halifax shares back in 1995-ish, which I promptly sold. What would they be worth today?

As a counter-example, see: Tories flogging off council houses at a massive undervalue to "favoured buyers" in order to buy votes.

Anonymous said...


CU, some time ago you mentioned you were not in gold because of the blatant manipulation.

This article needs shouting from the rooftops