Bye-bye $105 billion: UK bank bailout money may be gone for good

The US$105 billion of British taxpayer money used to bail out the Royal Bank of Scotland and Lloyds at the peak of the banking crisis may never be recouped, a parliamentary committee report warns.

The state owns more than 80 per cent of RBS and 40 per cent of Lloyds after injecting 65.8 billion pounds ($105 billion) of capital into the two in 2008 to help the institutions survive. It plans to return the money by selling the banks back to the private sector.

However British parliamentarians are doubtful about the prospect of a return on the investment and call for a conservative approach to withdrawing public shares in the banks, saying otherwise the taxpayers’ money will be lost.

The House of Commons Public Accounts Committee voiced the concern after the loss the government suffered in the sale of Northern Rock. The much smaller British lender was also rescued to the tune of 1.4 billion pounds ($2.2 billion) of taxpayer money back in February 2008, as customers were running on it. The bank was subsequently split into two, with the half owning the healthy part of the business sold out.

The Treasury made an estimated 2-billion-pound ($3.2-billion) loss to taxpayers in the split and the deal with billionaire Richard Branson’s Virgin Group, the damning report of the committee points out. The firm’s bid of 747 million pounds ($1.2 billion) for the bank was one of only two offered.

"The lack of competition does not fill us with confidence that the taxpayer will make a profit on the sale of the two banks which remain in public ownership, RBS and Lloyds. There is a risk that the 66 billion pounds invested in RBS and Lloyds may never be recovered," Margaret Hodge, who chairs the committee, said.

She added it was vital that final decisions on the sales are made with "value to the taxpayer taking precedence over speed of exit."

The report slammed the Treasury over its slow response to the banking crisis and lack of knowledge as to how to handle it.

"The Treasury lacked the skills to understand Northern Rock. It took too long to nationalize the bank and failed to make an effective challenge to the bank's business plan, first after nationalization in 2008 and again in 2009 when deciding what to do with the bank," the committee said.

RBS chairman Philip Hampton said last month that he thought the government would be able to exit its investment in the bank in 2015. The government would need to sell its stake in the bank at 1.8 times its current traded price to make its investment back.
Lloyds shares would have to rise some 35 per cent from the current level for taxpayers to break even.