PublicFinance
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COVER STORY
Don’t
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UK Financial Investments is meant to be
looking after the taxpayers’ massive stake in
the country’s failed banks. But concerns are
mounting about the Treasury agency’s ‘hands
off’ approach. Paul Gosling investigates
THE IRONY OF a New Labour government But, as the old investment warning Th e UKFI’s report
nationalising the commanding heights goes, the value of shares can go down as
(commanding depths, actually) of the well as up. Ours, unfortunately, have makes clear the
economy is almost beyond satire. Yet gone down by more than £10bn since the limits placed on
every household in the UK now has government stepped in last year to rescue
£3,000 at stake in the Royal Bank of two of the biggest banks – a loss of almost its actions by the
Scotland and the Lloyds Banking Group. £1,000 per household.
Management of the taxpayers’ share- Treasury
holding is the responsibility of a newly
created, and little known, institution, UK No credit due: Lloyds
Financial Investments – a company oper- admitted it had failed
ating at arm’s length from the Treasury. to undertake due
It controls our massive shareholdings in diligence when it
RBS and Lloyds and later this year will acquired HBOS
take over the government’s stakes in
Northern Rock and Bradford & Bingley.
Its recently published first annual report
makes grim reading, particularly when the Asset Protection Scheme – with RBS The UKFI has less at stake in the Lloyds the government last October – now their Treasury have got it about right on bal-
everyone from City grandee Sir David paying the government in shares for insur- Group – the result of the merger between price is about 70 pence. ance. But he warns that taxpayers could be
Walker and shadow chancellor George ance underwritten by the state against fur- Lloyds TSB and Halifax Bank of Scotland. The UKFI is expected to support the forced into taking a substantial loss from
Osborne is proposing radical reform of ther losses on assets. This could lead to the The government’s holding here is of al- banks to improve their market position their shareholdings – even if the banking
the banking sector. UKFI holding £60bn worth of RBS assets, most 12 billion Lloyds shares, 43% of the and earn as much as possible for the gov- sector recovers – because of European law
Any investment manager who had some 84% of its value. voting share capital. The stake is likely to ernment when the stakes are sold, hope- on state support for business.
shrunk a £34.5bn portfolio to £23.6bn The government rescue of RBS came increase to 62% of the business – worth fully earning a profit for the taxpayer. But ‘The approach they seem to be taking is
Bonuses are back: would face anger from investors – but the when it was clear that the bank’s partial almost £33bn – after Lloyds pays the gov- there is also pressure on the UKFI and the hands-off, and helping the industry gen-
RBS chief executive UKFI can hardly be blamed for the acquisition of Dutch bank ABN Amro had ernment in shares to insure assets under Treasury to ensure that the banks support erally rather than the individual banks,’
Stephen Hester is colossal failures at RBS and Lloyds. been disastrously mistimed and over- the Asset Protection Scheme. government policies while they are largely says Ohanissian. ‘Things are picking up,
entitled to a substantial The UKFI’s largest losses were incurred priced. For the 2008 year, RBS recorded Lloyds’ losses mostly relate to unwise state-owned. The government could face but they are still at a loss in terms of their
bonus if he can raise the at RBS, where it holds slightly under 40 a loss of £24bn, largely through write- lending at HBOS. Lloyds has admitted it action for anti-competitive behaviour by investments. Presumably they will be
bank’s share prices
billion ordinary shares – 70% of the voting downs related to the ABN-Amro pur- failed to undertake proper due diligence the European Union if it shows any favours forced out of their position by the EU at
share capital. This was the result of the chase. When the government injected before acquiring the bank under pressure to the banks it owns. some point. Whether they show a return
government’s £20bn capital investment in capital into RBS in October, the shares from Prime Minister Gordon Brown. Arek Ohanissian, an economist at the before they are forced out is difficult to
the bank in last October last year. The were worth 65.5 pence each – now they Lloyds’ shares were worth 182.5 pence Centre for Economics and Business Re- tell. They could be forced into a loss.’
public’s stake is to increase further through are worth less than 40 pence a share. each when the bank was recapitalised by search, believes that the UKFI and the Ohanissian says that the various actions PHOTOS: REX AND JOHN BOWLING (ABOVE)
20 PUBLIC FINANCE JULY 24–30 2009 www.publicfi
nance.co.uk www.publicfi
nance.co.uk JULY 24–30 2009 PUBLIC FINANCE 21
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