Taxpayer may never get back billions pumped into banks

Published on Monday 13 December 2010 20:34

THE UK government may never claw back the taxpayer funds ploughed into Royal Bank of Scotland and Lloyds Banking Group, a report from the National Audit Office (NAO) warns today.

• Royal Bank of Scotland is 83 per cent state owned

Although the total bill for bailing out British banks, including Northern Rock and Bradford & Bingley, has halved from predictions made at the peak of the crisis in 2008, the report paints an uncertain picture over whether the taxpayer will ever recoup its losses from its 83 per cent stake in RBS and 41 per cent holding in Lloyds.

The RBS share price needs to rise above 50p a share for the Treasury to make a profit, while the break-even point for Lloyds is 63.2p. RBS shares yesterday closed at 41.34p, well down on a 52-week high of almost 59p, while Lloyds stock ended at 69.3p.

While the situation is more encouraging for Lloyds, the NAO warns that the sale of these holdings is likely to prove tricky. The largest single sale of shares to date in Europe (excluding initial public offerings) is less than a sixth of the value of the RBS and Lloyds stakes combined.

The shares will need to be sold in several stages, the report says, and the Treasury may have to pump even more cash into the two banks before offloading the stakes, given the challenges of forthcoming capital reserve requirements.

The timing of share sales may also be affected by further possible regulatory and policy changes - particularly if the Independent Commission on Banking recommends an unscrambling of the Lloyds/HBOS merger.

Today's report, an update on research produced last year, raises the spectre of the government paying for its support to the banks "for years to come".

Interest on borrowings used to finance the rescue is costing the government 5 billion a year, the NAO reveals.

This accounts for 11 per cent of the total interest on public sector net debt.

On the plus side, however, the total bill for propping up the sector has shrunk to 512bn from the 955bn cost calculated at the zenith of the crisis.

The cost has eased due to the closure and repayment of certain support schemes as well as the withdrawal of some guarantees - such as those extended to Northern Rock savers.

While a question mark still hangs over the RBS and Lloyds stakes, the NAO believes the taxpayer will not ultimately be left with a loss on the main guarantees including the Asset Protection Scheme, into which RBS poured toxic assets.

Amyas Morse, head of the NAO, said: "The most likely scenario is that the taxpayer will not pay out on the guarantees.

"Optimism on this score should be tempered, however, with the realisation that the risk of further shocks to the financial markets and of significant loss to the taxpayer has not gone away."

A spokesman for the British Bankers' Association said: "Banks have made real progress as the NAO update shows … We are well aware of the extent of support for the industry and we are committed to repaying the public as quickly as possible."