State to start shedding its bank stakes after election

Published on Sunday 28 March 2010 21:15

THE government is understood to be considering plans to offload its stakes in Lloyds Banking Group and Royal Bank of Scotland just weeks after the general election.

UK Financial Investments, the quango that oversees the taxpayer stakes in the banks, is said to be looking at proposals to sell bonds that could eventually be swapped for shares in Lloyds and RBS.

It is thought the "convertible gilts" could be exchanged for shares once certain price targets were met that would give the taxpayer a profit – and could be launched for sale in June.

An update from UKFI released alongside the Budget last week showed that the state currently has a meagre paper profit on its shares in Lloyds, which is 41 per cent owned by the state.

The government pumped some 20 billion into Lloyds, but after the bank paid back 2.5bn to avoid a taxpayer-backed insurance scheme for toxic debts the average net investment for its 27.6 million shares is 63.2p.

Lloyds' shares closed at 64.1p on Friday, giving the taxpayer a theoretical paper profit of about 330 million. Shares in RBS are also moving closer to break-even.

A bond sale would be the first step towards reducing the taxpayers stakes in the banks. It is believed that the stakes would be decreased over five years.

It is believed that another option being looked at by UKFI is a public share auction, similar to that used in the privatisations of BT and British Gas in the 1980s.

&#149 Meanwhile, RBS is understood to be facing a fresh inquiry in the US. It is believed the bank has been subpoenaed by the Massachusetts Attorney General to obtain information on the mortgage activities of its US arm.

It is the latest in a string of US investigations into RBS. The bank declined to comment yesterday.