£1,000 paper loss per household for bank bailouts

Author: By Russell Lynch and Kelly Macnamara, Press Association

UK Financial Investments Limited (UKFI), which manages public stakes in the
two banks, said every household had more than £3,000 invested in Lloyds and
RBS shares.

But the £34.5 billion currently invested had shrunk to £23.6 billion as of
June 30 – a 32 per cent paper loss of £10.9 billion, equivalent to about
£950 per household.

The taxpayer is still deeply in the red despite a relative recovery in bank
stocks in recent months. In February the shares were showing losses of £18.1
billion.

The figures came as UKFI published its first annual report and strategy for
selling the public stakes in the ailing banks – although it warned an exit
could take several years.

The taxpayer currently owns 70 per cent of RBS and 43 per cent of Lloyds, but
after extra shares are issued under a scheme to insure the banks’ toxic
debts, this will rise to 84 per cent and 62 per cent respectively.

Acting UKFI chairman Glen Moreno said: “Make no mistake – this ain’t over yet.
We are a long way away from normalcy in the world’s financial markets.”

Mr Moreno said the body’s aim was to achieve “sound, prudent and profitable
banks”, and added: “UKFI is not, I repeat not, a short-term investor.”

Chief executive John Kingman, the senior Treasury official who led
negotiations with the banks over the rescue, said the public “rightly
expected” to get their money back.

Mr Kingman said he could not “sensibly answer” questions over when the stakes
would be sold, although the body was not “currently working” on any
transactions.

He said that moves to sell too early would mean a poorer deal for taxpayers,
adding: “This will not and cannot be a short term game.”

UKFI will consider sales to major institutional investors – which can be
organised quickly – and sales to private shareholders, as well as selling
bonds which can be transferred into shares in the two banks at a later date.

But the annual report adds: “While there have been some encouraging signs
recently, it is in our view too early to make a judgment that the conditions
are right for a share sale.”

The report estimates that when additional shares relating to the asset
protection scheme – the taxpayer-backed insurance scheme for the toxic debts
of both banks – are included, the value of the investments UKFI manages will
rise to £60 billion at current prices.

It warned “we may need to undertake several transactions in each bank’s shares
over a period of years to complete our exit”.

But an upturn in investor demand and a return to health for the banking sector
and economy as a whole “could create selling opportunities”, it said.

“Sales under these circumstances seem likely to be consistent with our
objectives of delivering value to the taxpayer and of maintaining financial
stability,” it added.

UKFI, which came under fire for approving RBS boss Stephen Hester’s potential
£9.6 million pay package, said it had implemented “perhaps the most
far-reaching reforms to remuneration structures of any large banks in the
world”.

Mr Hester, whose pay deal included a £1.2 million basic salary, has said he
will defer part of his payment for a further two years after concerns were
raised by investors.

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