The possibility UK government selling its stake in the Royal Bank of Scotland and Lloyds and exiting the investments within this parliament has almost but disappeared, senior officials connected with the process conceded.
Ahead of 2015’s planned election, Chancellor George Osborne was hopeful of selling the shares until recently, by 2012, signaling the end of the banking crisis and providing funds for higher government spending and possible tax cuts. Lib Dem leader Nick Clegg has also proposed a “people’s banking system” by giving every British voter shares in the state-owned banks.
However, the share prices of RBS and Lloyds have been ravaged by the recent market turmoil, caused by an economic slowdown and a looming sovereign debt crisis. The share prices are trading at about half the value that the government had paid while pumping in £66 billion.
Lloyds on Friday closed at 36p, compared to the average “in price” of 74p paid by the government. RBS’ shares closed at 25p, compared with the purchase price of 50p.
Given the weak economic growth outlook and poor bank profitability, chances of the stock prices appreciating considerably by 2015 are bleak, said bankers. Also the government may not implement the Vickers Commission proposal of ‘ringfencing’ the investment banking and retail operations of UK banks by 2015, complicating matters further.
“If you don’t know what the financial implications are (of ringfencing), it is much harder to write the prospectus. The less clear the economics are, the more the market will demand a discount in the value of the shares,” observed a senior bank director.
Business secretary Vince Cable and Mr. Osborne privately acknowledge that they knew it will be years before Vickers reforms could be implemented. The government planned to reduce the national debt from the sale of its stake in the banks.
However, the government body UKFI that oversees the investment in RBS, Lloyds and Northern Rock, refused to comment.