The government’s losing streak when punting with taxpayers money continues. We are sitting on massive losses in our RBS and LLoyds shareholdings. The sale of gold cost us a fortune. More recently the government bonds the Bank of England have bought have also fallen in value. They are now giving us an £8 billion capital loss.
The government first bought LLoyds Bank shares for 122.6p They are 57p today, under half the governent’s initial purchase price. The government’s average purchase price is 74p after the rights issue shares it bought more cheaply. The government paid 65.5p for its main shareholding in RBS. Those shares today are worth just 37p. That means they have lost more than £12 billion on the two main banks they bought into. Coupled with the bonds, that makes around a £20 billion loss.
Why did they act so foolishly? They say the bonds will bring other benefits. So far that just means higher bank profits and higher banker bonuses, with the private sector banks seeming to be much better at it than the ones the taxpayers own shares in. They point out they have had some income on the bonds, but when all the interest payments have to be borrowed as well that is small comfort for the taxpayer who is picking up the tab.
The nub of their argument to justify all this ruinously expensive interventions is it was necessary to “save the world” or rescue the banks. This was never true. They should have lent on tough terms for short periods, to give the banks a breathing space to raise the extra capital they needed. They could have done so by selling assets, cutting loan books, cutting costs especially of employment and attracting in new investors. Instead the government let them off the hook, inviting RBS and LLoyds to carry on with their bad old ways of charging too much, paying too much to their top employees and failing to compete in a way which helps the small enterprise sector in the UK.
Within the two large banks the taxpayer owns are a host of smaller banks waiting to get out. RBS owns Nat West, Royal Bank of Scotland, Ulster Bank, Coutts, Williams and Glynn and Drummonds. Lloyds own HBOS, and TSB. There’s nine banking licences, banking names and banking brands that could service the High Streets and help the entrepreneurs on their own once more. Why on earth don’t they get on with splitting up these unsuccesful monoliths? Why don’t they see the urgent need for smaller more innovative banks that could do a better job servicing the UK loan and financial service markets?
That could also be the way to get the taxpayers money back more quickly. It would certainly be the way to cut the ridiculously high pay and bonuses of the top executives of these organisations. They can only claim these mega salaries because their banks are so large. The Competition authorities guided by the government made a mistake in allowing these mega banks to be created through merger. They should at least have the courtesy to help put it right, by demanding their break up whilst they are still largely state owned.