91Èȱ¬

It's all well and good quoting paper profits based on the up-to-the-minute share price, but the reality is if UKFI tried to sell all the shares today, the price would crash to an all time low. So it doesn't really matter what the share price is at present, we're stuck with them for a while yet...

Don't forget we also need to include the cost of repaying the vast great pile of cash that was borrowed to fund the purchases of bank stock... which is both huge, and ongoing.

Inadvertently the government has created it own small sovereign wealth fund of just under £66Bn, in assets purchased at firesale prices. It is what they should have been doing in the boom years to take the heat out of the economy keeping exports competitive and not crowding out the private sector with public sector waste and inefficiencies. See Norway as the best example of this macro economic prudence. They should continue along these lines as well as building up the foreign currency reserves to further keep exports competitive(see China) and we will be well on the way to creating a truly successful economy based on innovation and real endeavour.

you are starting to get it.

Always so negative!
it seems to me that us brits seem to love negative news, I think this has contributed greatly to fear of spending- all hyped up by the media who have often used it to their own advantage for fame and money.
This recession will not last forever so lets start celebrating each small positive step to recovery.

> UKFI should abandon the fancy calculations and just stick to
> what taxpayers' actually paid for the stakes - and compare that
> with whatever we eventually get for the colossal holdings, as and
> when they're privatised.

You want the simple truth without jargon and rubbish? Then
don't ask bankers!

Robert, I know you don't seriously believe that the public will lose money from 'bailing out' RBS and Lloyds - no one with the slightest modicum of brainpower would ever suggest such a thing - it's ridiculous. It will take a few years, but we'll see a substantial return.

But surely it's meaningless to talk about opportunity cost without taking into account the absolutely disastrous consequences of not acting in the first place?

"Now the good news is that both share prices have been rising in recent days and the capital loss on our shareholding has been diminishing."

Errr - but isn't that because Lloyds announced to the world that they 'expect to make a profit' this year and the dumdum markets will take any piece of half decent news and turn it into speculation?

Now I don't want to sound superior - but writingsonthewall said a long time ago this would happen. I said they would go to every effort to show a tax payer profit - and the good old Government is behaving as expected.

...and finally good old Robert has used the magic words "opportunity cost of the investment"

A fundamental part of every fixed income performance calculation - and yet the Government wants to ignore this fundamental part of assessing any investment. Simply re-writing the rules of investment to suit them.

I would also throw into the mix the effect on the market of releasing such a huge amount of shares. Certainly for RBS - where we need to offload some 84% of shares into a market already flooded with current issues and splits.

I mean what investor wants to take on an RBS stake when they can just as easily go for the 'more stable' option of HSBC or Barclays.

The reality is the 'break even' share price is only a technical one, the actual price needed is much higher as the volumne is massive.

...and including dividends not even delivered in the calculation is a complete joke - that's like me saying "I'm making a 300% profit today - so long as my 3:30 at Aintree accumulator comes off"

...and you trust these monkeys to manage the UK finances?

Who are UKFI anyway? did we vote them in? - or are they a totalitarian body sitting under the cloak of Democracy?

I cannot put it any clearer we will not make a profit on these investments for at least another 5 - 10 years

I say 5 because I don't want to dash all your hopes - but deep down I think total nationalisation is inevitable for both.

Now who was it who said you can't lie your way out of recession.....?

Robert. You clearly do not understand the sums as you have left out the most important element - votes.

The budget shows that we are well out of recession and yet you still try to give everyone depression.

If they didn't lie they wouldn't be politicians.

As a taxpayer I want to do much better than simply break even. I want the same kind of return that a private equity investor would look for as compensation for the huge risk and sacrifice taken to save these broken banks. So please, keep banging away at the bottom line and don't let George Osborne sell them off cheap to his City mates.

It's not the opportunity cost that should be used to compare. As a net borrower the cost should be the cost of borrowing that amount in order to invest in the banks. That cost of borrowing is not fixed and will go up if we lose our AAA rating.

Adjusted for inflation please and minus the cost HMG paid to borrow the billions to invest uin the first palce, it wasnt eactly spare change they had lying around.

So we would need at least a 6-7% return in nominal terms to break even in real terms.

UKFI are taking us all for fools!

The bamks are still sitting on huge debt. It's just off-balance sheet. Break them up or we'll be here again sooner than you think.

Mr Peston wrote:
'Which is why there's a strong argument that UKFI should abandon the fancy calculations and just stick to what taxpayers' actually paid for the stakes - and compare that with whatever we eventually get for the colossal holdings, as and when they're privatised'

The calculations I view as largely irrelevant.

But I wouldn't privatise the banks.
You see the average Joe and Jane have now got a very large holding in the banking sector.

If it were me, I’d keep it. In fact I do more than that, I’d create a State Bank from it.

If there is to be anything good to come out of the financial mess that we (the people) have had to clean up, it would be control of the banking sector.

Because if we (the country), don’t have control over the creation of money as debt, we (the country) will be forever at the mercy of those private corporations that do.

So I’d hang on to the nation’s stake in these banks, and use it to wrest control of money creation from them.

Robert,

A great argument and well detailed analysis, but the time has now come to put away your calculator. Nothing really matters between now and the forthcoming general election. The banks are playing a waiting game.

The Chancellor's budget did nothing to relieve the fears and anxieties of the general population. Any financial policy will be the responsibility of the next government (of whichever political creed or colour).

So take a deep breath. Relax, and wait until the general election is over.

Nothing else matters!

I think you are playing around with numbers here Robert. And missing the salient point. The Government (our Government) conned the shareholders of Lloyds TSB into buying the dud HBOS to save the country's bacon. Gordon Brown has admitted as much. Thus what we, the 59% of the shareholders of Lloyds, want is our money back for being sold a pup. A decision over which we had no choice, more particularly because the institutional shareholders who owned share in both banks backed Brown to try to save their HBOS bacon. So when LLoyds paid £2.5bn for the "privilege" of saving the Government from a banking collapse it was doing the country a favour. One which I would have rather they had not done. In football terms it is boo to Sir Victor Blank, boo to Eric Daniels and boo to Gordon Brown.

But whether your figures of 63p or 73p are right, the real deal here is for all shareholders, including the Government with its 41% and the rest of us with our 59%, to get as much back as we can. Great news for the country and great news for the shareholders. And today (I think it was Merrill) have forecast that the Lloyds share price will double between now and 2012. To £1.30 or so. I am not surprised. I would like to see one of the experts on here do a sum of the parts exercise to show how much more than the current valuation of Lloyds of £40bn might be in the books. Assuming Daniels is right and the impairments are under better control (they have had more than a year to get to grips with them) then what is the real worth of Lloyds TSB, Halifax, Bank of Scotland, Cheltenham and Gloucester, Birmingham Midshires(?), Scottish Widows, the HBOS insurers etc etc?

Incidentally, I think the government would be doing the tax payer a great disservice were it to attempt to sell off its 41% before the goose has really laid the golden egg. If Merrill is right that ought to mean holding on for a couple of years at least. A penny off the debt today is not as good for the overall debt as 2p tomorrow. And there is nothing wrong with the government having some shares as it did with BP and has for some time with the Tote.

This comment was removed because the moderators found it broke the house rules. Explain.

# 10. At 2:19pm on 25 Mar 2010, S Thomas wrote:

> As a taxpayer I want to do much better than simply break even.

Good point, S Thomas. You're right. Those banks have to earn the
right to continue to exist. We want double our money back.

'Moving the goalposts' is usually a sign that they don't know themselves what the real situation is.

I admire your persistence in trying to get some realistic figures but like everything else at the moment everything is up in the air and when it does eventually land you'd need to be in a bunker to avoid the fallout.

#14. Dempster

further to Robert Peston's comment "...whatever we eventually get for the colossal holdings, as and when they're privatised"

The key word is 'privatised' - my best guess is that we will all be conned into paying for the shares 'at a discounted price' that we already own. (i.e. like Sid..)

Just remember investments can go down as well as up.......

In the next 1 to 6 months the amount of stories that will be spun as good news or bad news will put commentators into a flurry of stories.
Sorry but is now time to take any sort of thing like this with the pinch of salt.

Maybe these banks should be made into a new Giro bank for the people? After all the infrastructure is all there, all it would take is a change of viewpoint.

4. At 1:59pm on 25 Mar 2010, superseasideman wrote:

"you are starting to get it."

I am very pleased we have achieved this - all bloggers here should be proud that we have finally influenced a 91Èȱ¬ journalist.

I mean it's only taken about 2 years on a subject which was so blindingly obvious there are 5 year olds quoting it - but nevertheless it's an achievement.

Right.....now we try to explain to Robert why the recession never stopped and the 'growth' is merely Government subsidisation of the Economy at the cost of devaluation through QE and low interest rates.

7. At 2:15pm on 25 Mar 2010, ProfessorHenryJonesjr wrote:

"Robert, I know you don't seriously believe that the public will lose money from 'bailing out' RBS and Lloyds - no one with the slightest modicum of brainpower would ever suggest such a thing - it's ridiculous. It will take a few years, but we'll see a substantial return."

It will take a few years - care to speculate on how many? - or is this a number somewhere between 100 and inifnity?

"But surely it's meaningless to talk about opportunity cost without taking into account the absolutely disastrous consequences of not acting in the first place?"

....or maybe you don't understand opportunity cost. There may have been a catastrophe in private banking, but with the bailout money the Government could have started a new 'national bank' as a backstop to all the failing private ones.

That way we could have let the privates fail and still retained a financial sector (albeit a nationalised one).

Now being the only bank left in town - may have been slightly more profitable than propping up zombie ones.

...but this doesn't fit into your argument, so lets just forget about it...

10. At 2:19pm on 25 Mar 2010, S Thomas wrote:

"So please, keep banging away at the bottom line and don't let George Osborne sell them off cheap to his City mates."

I fear this will be inevitable - however at least all those speculators will get burned - every cloud has a silver lining!

16. At 2:46pm on 25 Mar 2010, majorroadaheadagain2 wrote:

"Thus what we, the 59% of the shareholders of Lloyds, want is our money back for being sold a pup."

Didn't you read the small print? - the value of shares can go down as well as up!

"Assuming Daniels is right and the impairments are under better control"

Is this the same Eric Daniels who was supposed to make sure due dilligence was done on the HBOS takeover? (which you were complaining about being Browns fault)
So he was wrong about the takeover - but he will be right about the recovery?

Oh dear, if that's your hope - you have no hope....

Would this Merril Lynch be the same Merril Lynch who said the Anglo Irish Bank was 'financially sound' following an $11 Million fee - days before it was nationalised?

It would appear that the people you trust have been very wrong before - and yet you're desperate to trust them again.

Glutton for punishment?

Bailing out the banks has been a source of embarrassment for the Government, just being linked to the scandal is bad enough and it's certainly behaving like it wants rid of these institutions as soon as possible. That's no real surprise.

But I suspect what many just don't want to believe is that the government would be so desperate to improve things that it would be happy to offload RBS & Lloyds pronto just to improve its appearance? And if that led to another credit crunch style crash in 5 years time that would be someone else's "problem!"

You might think the Government would be making sure that Regulation was being toughened up to prevent such a situation. However, you're being mugged....see below:

Lloyds and RBS are huge companies, that the government IS NOT GOING TO ALLOW TO GO BUST.
Both are moving into profit.
Both have a MASSIVE CUSTOMER BASE, which will not change.
Are these share prices too cheap?
Got £2000 to spare?.....buy Lloyds ans RBS shares?
Despite the ubiquitous pessimism....these shares may be the best investment you could ever make.
In 3 years time....worth 3 or 5 pounds each?
You'll kick yourself if you didn't buy them.
Those who pre-judge the market make the biggest profit.
Sorry all you pessimists, but I'm thinking about buying them.

"taxpayers took those stakes to prevent the banks from collapsing and exacerbating the mess they'd already made of the economy through their reckless lending"

^^ THAT'S your opportunity cost right there!!

Writingsonthe wall

I did read the small print, but it said nothing about a Prime Minister being allowed to cook up a deal which allowed one solvent company to be used to bail out an insolvent one, at the same time totally blowing a hole in Company Law. All in the interest of the country. It is very clear in our Company Law about the duty of directors to their employees and sharholders. It says nothing about the duties of a PM to act in the way that Gordon Brown did by his own admission. It is also very clear in competition law both here and in Europe that no such act as that perpetrated by the main participants in this sordid deal would ever be allowed. To use Government to push through a monopoly unless it was covered in some act allowing it during war time.

I never complained about Brown being responsible for due diligence. He probably doesn't know what it is. If you read any of my previous posts on this issue you will see that I have always castigated Daniels and the Board for failing to carry out due diligence - by Daniels own admission just a few weeks after the deal was finalised in early 2009 he admitted that had he had more time he would have done five times as much due diligence as he did.

If Lloyds does turn round, which we all must hope it does as taxpayers then it will have very little to do with Daniels, although history might show that, despite the impairments LLoyds finished up with a winner for the wrong reasons. It doesn't in any way absolve those responsible for the trauma this has caused but it would be a nice twist and good news for the public coffers. We must all be in favour of that.

I am not desparate to trust anyone nor am I a glutton for punishment as you suggest. My life is much too sweet to be affected by what happens to a few shares. What I do like is honesty and fairness, which is missing in the Lloyds/HBOS saga.

#27 stevewo

I have said it before and no doubt I will say it again. Shares and other traded instruments have their price set by the herd. General acclamation.

The rules are exactly the same as in the R4 parlour game "Mornington Crescent"
Exactly the same.

Robert me thinks that you also should consider the money that LTSB saved the government by agreeing to bail out the busted HBOS. It still beggars belief that Lloyds was foolish enough to do this, and even more stupid for agreeing to pay a fee for the implied benefits of the APS. Lloyds should be charging brown for digging him out of a big hole. Nobody, including me believes the banks are blameless but stop talking about Lloyds as though it is some sort of basket case.

How much does it cost to run UKFI? If we didn't have RBS, Lloyds and Northern Rock to 'Manage' then we wouldn't need UKFI. How much Treasury time has been spent? These are real costs that must be considered when it comes time to weigh these "investments" in the balance.

How many jobs lost because the banks failed? We must add the social security expense claims to our outlays here - only then can we assess the 'ideal' selling price for the rotten things.

What happens if a water supply company can't do business? The consequences of their actions were staggering.

Alastair Thomas

We dont "have" Lloyds as you put it. The shareholders have it of which 41% is the Government. Put the clock back to December 2008, before the sordid deal with Lloyds and HBOS was allowed to go ahead in spite of huge protests from lloyds small shareholders (2.8m of them - that is us, Britains) and you have mr Brown egging on those who controlled LLoyds (the institutions - our pension funds) to do the deal. And Blkank, Daniels and the Board of Lloyds fell for it.

This was purely political, and a shameful use of a British company to bail out a dud HBOS, which had committed suicide through its own negligence. With the full knowledge of the Board, who admitted they had done due diligence, but within weeks of the finalisation were admitting that had they had more time they would have done five times as much.

The guilty parties in this are Gordon Brown, the Board of Lloyds, the FSA, The MMC, The EU competition commission and the institutional shareholders, who could have stopped it. Lloyds shareholders were cynically used for political ends. Lloyds shareholders owe nothing to anyone but if the share price does recover the people will make some money out of a con.

Is this Peston's Pick? More like Peston's Picky! What's the point of debating which share price to use so early in the recovery of RBS and Lloyds? The recent article in the Telegraph quoted some of our top analyst's suggesting by 2012 our shares will have made a profit of £50bn- or a sizeable chinch of our national debt.

Why not just let the banks continue their recovery and let them get back to what they did for many years prior to the Global Financial Meltdown, that is contribute billions of pounds of corporation tax to the UK economy.

And let's stop the talk of this rediculous 'Bank levy' which is merely pandering to the emmotions of the electorate and will be like shoving a cork up the Golden Goose's behind.

Re Post 22. I really hope that it does not take another 2 years.

Robert,
What about the cost of running UKFI, which only exists to manage the share holding?
Apart from nodding through executive payrises and share only bonus deals what exactly do they do all day?

staggeringly poor article again, but we've come to expect it. If you want to talk about opportunity cost in determining the tax payer return on investment in these banks how about factoring in the non-cash benefit (or 'opportunity benefit' if you like)being the avoidance of collapse of our entire economy. Of course you can't measure that, but the very fact that you cant measure it is enough of a justification for the investment in itself. If the govt sold out today for a cash loss it would still be worth every penny

Realistically both RBS & LLOY won't pay any dividends until they have bought back some of the billions of shares HMG owns. The more issued share capital means dividends stay tiny (lots of shares), if the banks buy back shares the dividends can rise but be the same cost to payout (less shares to pay it to) and share price rises (less shares multiplied by price), and they can pay back HMG without having to pay extra over & above the market price by using brokers on the open market.

I reckon both banks will make profits this year, the impairments will continue to fall, new entrants will force innovation but be saddled with the dodgy clients who are causing impairments in the first place ...and LLOY will beat RBS to total private ownership by miles.

In the interests of compliancy, yeah I own both RBS & LLOY shares (bought last year, both in profit) but I'm also a LLOY customer after being badly burned by RBS when I was a student. So I've experienced both firms as both a client & shareholder.

One thing is that LLOY tends to get blamed for the stupidity of HBOS, please remember LLOY saved HBOS from being a bigger scale version of Northern Rock, Bradford & Bingley, etc. LLOY screwed its shareholders to help HMG out (and yeah its board got a bit greedy), after that it still survives, I think a little respect is in order.

If an ex VC is hired as Chairman what do you expect? They are just practising writing the exit documentation and flying a kite. I'm with Dempster, convert them into a state bank.

What really gets me annoyed is the banks created this global melt down, we throw money at them like its gone out of fashion. Yet we have the very same banks who were bailed out now foreclosing on millions of people!
Families are losing there homes because of job loses and then not being able to keep up with the mortgage. Our values are complelty wrong when we put businesses before families!
Just check out whats happening in the USA, this 91Èȱ¬ website explains the misery there.

41 Keith Rodgers,I looked at the link ,WHAT SORT OF DOUBLESPEAK DESCRIBES SOMEONE WITH NEGATIVE EQUITY AS A "HOMEOWNER"?

Indeed it used to be the case that people who described themselves as owners without having paid for said item were called squatters ,mustn't say too much ,might ruin the recovery in the leeching "care" system .

42 Rita-R-Dlus
Some times people find themselves in changed circumstances!
One minute you could be in a high paying job and able to afford the home and mortgage and the next minute you have no job!
Thats not being irresponsible its just bad luck!, the main point I was trying to make is we throw money at businesses and help them out while we let families be put out on the street. Society has a weird set of values if thats the case.The big downturn lowered values and thats not the fault of the home owner thats greed that pumped them up in the first place !
Take a look at this web page TSB boss is back to business as usual paying himself a bigger bonus than last year even though the business is now partially state owned!

I personally beleive it will take years to sort this mess out, why here is my logic, individual credit maxed out = no consumption = massive job losses = slump big time!
The wages in the UK are so bad now and the cost of living there is so high that the average person has no choice but to live in hock! Thats the way the poverty trap works there, keep everybody owing and the financial institutions make massive amounts of cash through lending.
The gravy train has stopped now they are at a loss to figure out how they can move forward, fees on bank accounts will be next you watch. If nobody takes on loans or mortgages they are stumped!

Dempster is right convert them all to state owned banks take the speculation out like China has and allow manufacturing businesses to work in a stable exchange rate situation.
China is booming why? because the businesses there can focus on product manufactureing and not constantly having to watch the city brokers speculating on there share price, exchange rates, metals or other commodity prices!
The so called invisible earnings screw up 90% of the business plans and budgets in UK businesses.

Micheal Moore sume it up to a tee in this video.
A Harvard Professor explains how ordinaryy folk have been well and truely conned.Take a look its amazing!

Sorry click on the 2nd link down on the left titled how wall street got away with murder.

According to the FT the average Lloyds "in price was 63p