Page last updated at 16:06 GMT, Monday, 13 July 2009 17:06 UK

'Challenge' to sell bank stakes

RBS logo
UKFI says it has reduced the loss on the investments such as RBS

The body set up to manage taxpayers' stakes in nationalised banks has said it will be "challenging" to sell the stakes held by taxpayers.

UK Financial Investments (UKFI) was set up to manage taxpayers' shareholdings in Royal Bank of Scotland and Lloyds after they had to be rescued.

It said the market value of UKFI's investments in the banks was now £65bn.

When everything is taken into account every UK household will have more than £3,000 invested in the banks said UKFI.

But if UKFI sold the shares now it would make a loss of £10.9bn, it said.


That loss, due to the fall in the value of the banks shares and investments, is less than the £18.1bn shortfall registered in February.

UKFI said: "Our own task of returning these investments to the private sector is challenging.

"The amounts involved are very large, and a successful disposal of our holdings will require professionalism and patience.

"We all have a stake in UKFI's success. Skilled disposal of these investments will recoup tens of billions of pounds for the taxpayer."

UKFI said it was not possible to say what share price would trigger a sale, but said it would "maximise" the value of the investments for the taxpayer.

'Patient and professional'

"I would not be at all surprised to see some transactions occurring within a year or so... and continuing over the next several years," Glen Moreno, acting chairman of UKFI, told BBC Radio 4's World at One programme.

These banks belong to us, to taxpayers, and the monetary value of our investment in this duo is huge

BBC business editor Robert Peston

The important thing, he said, was that UKFI established firstly "that the economic environment become positive so that the banks can be restored to profitability".

He said that it would then be a matter of a "patient and professional disposal of shares" - probably in a public market.

"It won't happen quickly, but it might happen reasonably steadily and our position will then gradually decline," he added.

Valuing the UK government share

Valuing the size of taxpayers' holding in these banks is a complex task which demonstrates the enormous exposure of the UK taxpayer and the need, in UFKI's view, to get a good price for that holding.

Recapitalisation: £34bn (currently worth £23bn)
Preference shares: £41bn
Total value: £75bn (currently worth £65bn)

The Treasury initially invested a total of £20bn to recapitalise Lloyds Bank, and £14.5bn in RBS, for a total of £34.5bn.

Those investments are now worth £23.6bn on 30 June, a loss of £10.9bn.

But in addition, the government has also agreed to guarantee billions of potentially toxic assets held by the banks.

In return, they will receive a special type of non-voting shares worth £25.5bn from RBS and worth £15.6bn from Lloyds to pay a commercial rate for such protection, for a total of £41.1bn.

So overall, the government's total potential stake in these two banks amounts to £75.6bn (or around £3,000 per household), although its current value is £64.7bn.

'Big mouthful'

BBC business editor Robert Peston said the sale of such a large holding could "not be done overnight - that's just too big a mouthful for investors to swallow quickly".


Steve Schifferes, business reporter, BBC News

The UKFI has strongly defended its decision to offer RBS chief executive Stephen Hester a near-£10m pay packet including bonuses.

It is understood that UKFI was consulted over this matter by the RBS board of management.

It took the view that RBS had to pay a commercial rate to its chief executive in order to ensure that the firm got the best possible talent.

And that was the best way to ensure that the taxpayer eventually got back its huge investment in RBS.

It also make it clear that it was in no hurry to begin the complex task of unloading the government stake in these two huge banks, and was prepared to wait until market conditions improved before even putting a toe in the water.

"And, for the avoidance of doubt, if we sold at [the current value] we would be selling at a loss - because the market value of taxpayers' initial stake in the two banks is about £11bn less than we paid for those first holdings."

He added that in the history of Europe there had only been three occasions when banks - or indeed any companies - had sold shares worth more than £10bn to commercial investors in a single exercise.

These were share sales by HSBC, RBS and UBS - all carried out in 2008 and 2009.

There was anger this year when it emerged that the government was not going to step in to prevent new RBS chief executive Stephen Hester from receiving a salary package worth up to £9.6m.

Questions have been asked about the appropriate level of pay at a bank that has received billions in taxpayer support.

Officials, when questioned at a briefing following the release of the UKFI report, indicated that they believed RBS had to pay the rate necessary to ensure it got the best possible talent.

RBS shares

But speaking to the BBC, the chairman of the Treasury select committee, John McFall, expressed some misgivings about the way the UKFI operated.

"To date UKFI has not given enough information. Its website is devoid of content. Its framework document was published in March 2009, fourth months after it was set up," he said.

He also said that while it was important to maximise the share price of RBS and Lloyds before any sell-off, UKFI was also in a prime position to help drive through banking reform.

"The UKFI is in a pivotal position to make sure that reform takes place," he said.

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FROM OTHER NEWS SITES 11bn loss at banks - 20 hrs ago
Telegraph Government sale of RBS and Lloyds bank stakes 'could take years' - 28 hrs ago
Daily Express Banks 'won't repay cash from taxpayers for years' - 30 hrs ago
The Independent Value of taxpayer's holding in British banks plummets - 33 hrs ago
Finance 24 UK faces long wait - 35 hrs ago

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