The previous government injected £65.5 billion - more than £1,000 per citizen - to prop up the two lenders in the hope they would repay the loans with interest. But nearly four years on, the taxpayers’ stake is worth just £36 billion.
The banks are set to reveal combined losses of at least £4 billion on Thursday and Friday as they bear the brunt of the eurozone debt crisis and the increased regulation being heaped on them.
The annual results will underline the scale of the struggle faced to turn around the banks, with one analyst suggesting that the Government needs to consider selling at least some of its stake at a loss.
Plans to give the shares directly to taxpayers to ease some of the public anger about the pay enjoyed by bailed-out bankers are reported to have been ditched because the investments are too shaky. T
he Government injected £45.5 billion for its 82 per cent stake in RBS but those shares are today worth around £26 billion despite a 40 per cent rise in the share price in recent weeks. It needs shares, which are currently trading at about 28p, to rise to 50p before it can break even. It is a similar story at Lloyds, which benefited from a £20 billion bailout.
The taxpayer needs shares to rise to 63p to get its money back but they are currently trading at around 35p, leaving the Government nursing losses of nearly £10 billion, although £2.5 billion has already been repaid. The bank recoveries have been made more difficult because the Government has announced drastic reforms of the sector, including forcing banks to separate their retail and investment banking arms, which will cost them money to implement and hit profits.
The current malaise in the world economy and the Greek debt crisis has added to banks’ woes. RBS is expected to announce on Thursday that it has made underlying losses of £2 billion, while Lloyds is set to reveal losses of as much as £3.5 billion on Friday after compensation for mis-selling payment protection insurance is deducted. Both banks are likely to focus on the progress they are making towards delivering a better return to the taxpayer.
RBS is stripping down its investment arm Global Banking and Markets amid Government pressure to focus on the UK high street services, which will lead to 3,500 job losses on top of the 2,000 announced by the bank last summer. Lloyds is close to selling off 632 branches, a move enforced by the EU as a condition of taking a state bailout.
It has named the Co-operative Bank as a preferred bidder. A recent note from Manus Costello, managing partner at Autonomous, says the Government should start selling its shares in RBS early.
He sees “little prospect” of RBS shares moving above 50p in the medium term and calculates that the Government is paying £500 million a year in interest payments on the money it borrowed to bail out the bank. After RBS boss Stephen Hester was recently convinced to turn down a near-£1 million bonus, Mr Costello fears the pressure from Government to moderate pay will also damage the bank’s prospects by making it hard for it to retain and attract the best staff.
He said: “The vicious row over compensation has made it clear that RBS is unlikely to be able to retain senior staff if majority Government ownership persists.
”Losing the CEO would be a major blow to the stock and therefore the Government’s ability to exit its position.”