Warning on £66bn public bank stakes

Πηγή: FT
By Jim Pickard
Nov 15 2012

Taxpayers may never see the return of the £66bn spent on shares in Royal Bank of Scotland and Lloyds Banking Group four years ago, an influential group of MPs warns on Friday.

The Public Accounts Committee, the spending watchdog for parliament, says it is not convinced that the government will be able to sell its stakes in the banks for the price it paid “any time soon”.

The MPs argue that the “temporary public ownership” is likely to last for a protracted period so long as the government retains the objective of getting value for its investment.

More starkly, the accounts committee report goes on to say: “The £66bn cash spent purchasing shares in RBS and Lloyds may never be recovered.”

The report comes just weeks after Jim O’Neil, chief executive of UK Financial Investments – which controls the two giant stakes – admitted that a sale was not imminent.

Mr O’Neil told another Commons committee that 2013 should be the final year of “major restructuring” for the pair, which nearly collapsed during the financial crisis.

But he said retrieving full value for taxpayers would also depend on economic recovery, stabilisation in the eurozone and a “settling down” of financial regulation.

The MPs’ report, primarily into the collapse of Northern Rock, admits that the case was not directly comparable to RBS and Lloyds but says “lessons may be read across”.

It says the Northern Rock sale – to a consortium of Virgin Money and US financier Wilbur Ross – was handled well. “But the low level of competition does not give us confidence that the taxpayer will make a profit on the sale of RBS or Lloyds”, it adds.

Not only were there just two bidders for Northern Rock but Virgin put up £1.4bn, a small sum compared with the £66bn invested in the two bigger banks. “The taxpayer is likely to hold its stake in RBS and Lloyds for many years,” the report says.

A Treasury official said the report was “speculative” in suggesting the money might never be retrieved. “The government will wait for the right time with a view to wanting to get the best deal for taxpayers,” he said.

It may be able to sell the stakes more gradually, given that both are still listed on the London Stock Exchange. That process could involve a large number of retail and institutional investors rather than a single buyer as in the case of Northern Rock.

Taxpayers will make an economic loss of £2bn on the 2007 rescue of Northern Rock, according to a report earlier in the year by the National Audit Office.

The committee says on Friday that government has “many competing objectives for its shares in the banks and the tensions will continue as the period of temporary public ownership extends.

Ministers’ suggestions include a share offering aimed at households; the sale of a large chunk to sovereign wealth funds; and even full nationalisation. The idea of selling for less than the government paid is still seen as politically unpalatable and the shares are now worth much less than when they were bought.

The report admits that reconciling public policy with shareholder value objectives can be difficult because the “cost of meeting the former can have a negative impact on the latter”.

The sale of the two stakes is not included in the Treasury’s fiscal modelling for this parliament, meaning that any successful privatisation could deliver a well-needed boost to the Exchequer – and a political coup for chancellor George Osborne.

UKFI manages 82 per cent of RBS and 40 per cent of Lloyds Banking Group.

The committee argues that the Treasury was part of a “monumental collective failure” by the establishment to understand how the pre-crisis boom could lead to a banking crisis.

The ministry did not have enough capacity or skills to respond to the crisis and realise that it was “systemic”.

Richard Bacon, a Tory MP on the committee, said the report suggested that the civil service lacked skills and experience from outside Whitehall.

“As the banking crash unfolded and Northern Rock collapsed the Treasury clearly did not have the skills to understand what the crisis meant or how to address it,” he said.