Taxpayers' loss in RBS and Lloyds bank stakes stands at £40bn

The scale of the year-end deficit means the government is unlikely to sell out of the banks at a profit – or quickly

Taxpayers end 2011 nursing a loss on their stakes in Royal Bank of Scotland and Lloyds Banking Group of almost £40bn as the crisis in the eurozone and regulatory changes being implemented by the coalition have dented investors' appetite for bank shares.

The deficit is the largest registered at the end-of-year stage by the banks, which were bailed out in October 2008. Eventually, £65bn of taxpayer funds were used to prop up the two banks, taking an 83% stake in RBS and just over 40% in Lloyds.

At the end of 2009, the paper loss was £26bn and at the end of 2010 the loss was a relatively slim £12.8bn.

The scale of the losses now facing the taxpayer indicate that any hopes the government is harbouring of selling out of the banks at a profit — and quickly — have long evaporated. Northern Rock, nationalised in February 2008 and sold to Virgin Money this year, has also failed to reap a profit for the taxpayer; a review by the National Audit Office is under way after it emerged that Virgin was able to use some of the capital tied up Northern Rock to fund the £747m purchase price. Virgin is scheduled to take control of the Newcastle-based lender on 1 January.

The NAO has previously calculated that for every 10p rise in the share price of RBS, the taxpayer receives an extra £9bn for its stake and an extra £3bn for every 10p move in Lloyds.

During 2011, the shares in both banks have been hammered: Lloyds ended 2011 at 25.09p (from a low of 21.6 during the year) and RBS at 20.1p (from a low of 17.2). At these prices, the loss in RBS, into which the taxpayer bought at 50.2p, stands at £27bn and in Lloyds, in which the taxpayer breaks even at 73.6p, is £13bn.

The slump in the Lloyds share price means it is one of the FTSE 100's worst performing shares in the past 12 months, which have seen it take a £3.2bn provision for misselling payment protection insurance and suffered the absence of its chief executive António Horta-Osório to fatigue. Horta-Osório, who did not sleep for five days in October, is due back at his desk early in January .

The RBS share price faces further pressure in 2012 when the bank is expected to undergo further restructuring after chief executive Stephen Hester unveils an overhaul of the investment banking business. In part, this is the result of the eurozone crisis and in part the result of government plans to adopt measures outlined by the Independent Commission on Banking to require banks to "ringfence" their high street banking businesses from retail banking arms.

Hester is also known to be keen to press ahead with plans to pull out of the Asset Protection Scheme, through which the government insures the banks' most toxic loans in return for a fee which eats into the bank's potential profitability.

At one point during 2011 the taxpayer was almost breaking even on its stake in RBS when its shares reached 49.47p, as was the case for Lloyds when the shares hit 69.8p. The implications of the measures proposed by the ICB, chaired by Sir John Vickers, will influence share prices again in 2012, as will the continuation of the crisis in the eurozone.

Contributor

Jill Treanor

The GuardianTramp

Related Content

Article image
The minutes that reveal how the Bank of England handled the financial crisis
Documents released following Treasury request shed light on £65bn bank bailouts for HBOS, Lloyds TSB and RBS

Larry Elliott and Jill Treanor

07, Jan, 2015 @12:05 AM

Article image
US warns against light touch bank rules that 'ended tragically' for UK

US treasury secretary Timothy Geithner wants global regulations

Jill Treanor

07, Jun, 2011 @6:00 AM

Article image
Bank bailout loses taxpayers £23bn
Loss on stakes in RBS and Lloyds illustrates difficulty government faces in trying to make profits from shares sell-off

Jill Treanor

31, Dec, 2012 @6:04 PM

Article image
Lloyds chief António Horta-Osório prepares to meet US investors
Bailed-out bank's chief executive will fly to New York to present the results of his strategic review to shareholders

Jill Treanor

10, Jul, 2011 @5:46 PM

Article image
Lloyds bank boss Horta-Osório returning to work after sick leave

Lloyds Banking Group chief executive, António Horta-Osório, will return to work in January after insomnia-induced collapse

Dan Milmo

14, Dec, 2011 @4:38 PM

Article image
Lloyds Bank share sell-off returns further £500m to Treasury
Latest shares sell-off cuts government stake in bank to 23% with nearly half of £20bn bailout now recouped

Jennifer Rankin

09, Mar, 2015 @11:02 AM

Article image
Final taxpayer shares in Lloyds Banking Group to be sold off
Government plans to sell last remaining shares this week eight years after pumping in £20bn to prevent bank’s collapse

Jill Treanor

14, May, 2017 @2:28 PM

Article image
Taxpayers lose on RBS and Lloyds in 2010
Taxpayers' shares in bailed-out Royal Bank of Scotland and Lloyds Banking Group fell £12.8bn over 2010, making early sell-off unlikely

Jill Treanor

31, Dec, 2010 @5:15 PM

Article image
Taxpayers' £66bn in RBS and Lloyds at risk, say MPs
Funds used to buy shares in Royal Bank of Scotland and Lloyds Banking Group may never be recovered

Jill Treanor, City editor

16, Nov, 2012 @12:04 AM

Article image
George Osborne defends sale of Northern Rock
Labour government had a deal with Brussels over the timing of the Northern Rock sell-off by 2013, George Osborne says

Phillip Inman economics correspondent

20, Nov, 2011 @8:27 PM