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Government funded banks owe taxpayers billions

Nia Williams

December 17, 2010

The NAO said the amount of cash borrowed by the government to support banks had risen £7bn since December 2009 and that taxpayers were likely to be providing support for years to come.

While the report said it was unlikely taxpayers would suffer losses on the Asset Protection, Special Liquidity and Credit Guarantee Schemes, it said the eventual cost – initially estimated by the Treasury to be £20-£50bn – will depend on the government selling its shares in Lloyds Banking Group and the Royal Bank of Scotland at a reasonable price and recouping the loans it has made to banks.

Meanwhile the government is paying £5bn a year (£10bn so far) in interest on debt to fund this support to the banks. So far this has been offset by the fees and interest received by the Treasury from the supported banks but the NAO said this is likely to fall in future.

Joe Dickerson, Execution Noble analyst, claimed the report was on the pessimistic side.

“A reduction of the UK government’s stake in Lloyds would trigger a virtuous circle whereby wholesale funding costs decline, driving improved net interest margin performance, therefore greater core capital generation, earnings upgrades and re-rating of trading multiples,” he said. “The sum of these phenomena lead to greater systemic financial stability and profit for the taxpayer.”

In its review the NAO claims that if the government’s shareholdings in RBS and Lloyds Banking Group were sold as of 1 December 2010 it would have made a loss.

Dickerson added: “This is a partially ersatz conclusion because it fails to take into account the fees and interest received by the government from the banks as disclosed on the next page of the same report.”

According to Dickerson’s analysis, incorporating the £3.1bn of fees and interest Lloyds Banking Group has paid to the government (mostly the £2.5bn paid to exit the government’s Asset Protection Scheme in November 2009) taxpayers would today realise around £1.5bn of profit on a sale of the government’s entire stake in the bank.

By the same calculations, the UK government would realise a prospective loss of £7.4bn on its RBS stake.


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