Bank Privatisations – The Reality


Recent headlines have suggested – rather misleadingly – that an incoming Conservative administration could raise c£70 billion from selling the Government's stakes in RBS and Lloyds. If only this were true.

The reality is that both banks, especially RBS, remain in a parlous state, especially as rising bad loans increasingly exert a malign influence on banks' cash flow.

Assuming a 10% placing discount for any sell-down of the Government's stakes of 84% in RBS and 41% in Lloyds, the total value – based on this week's market capitalisation – would equate to c£29 billion. Compared with the c£45 billion of taxpayers' money already injected into RBS alone, such a return looks pretty meagre.

Remember, too, that RBS's shareholders – due to appalling decisions in the past – are still partly exposed to the £282 billion of 'toxic' assets within the Government's Asset Protection Scheme.

Of course, the share prices of both RBS and Lloyds may rise sharply. If so, in the latter's case, City investors should be canvassed about their response to a part sale of the Government's 41% Lloyds stake.

Significantly, following last October's Initial Public Offering (IPO) in Brazil, Grupo Santander is apparently eyeing a similar arrangement for its expanded UK banking business: any Lloyds offer could be on the coat-tails of this purported deal.

More generally, any plans to resurrect the highly successful privatisation policies of the Thatcher Government should be applauded. And encouraging small shareholders (SIDs) to participate is welcome, even if many privatised companies are keen to remove them from the share register.

For the incoming Government, there are various suitable privatisation candidates, most obviously Royal Mail (without its burgeoning pension fund) and Scottish Water. Sales proceeds, prior to the disposal of any bank shares, could reach £16 billion.

Given the shocking state of UK public finances, aren't privatisation proceeds now more welcome than ever?