Banking regulation uncertainty may slow share sales in bailed-out banks

UKFI – which controls taxpayers’ stakes in RBS and Lloyds – calls for further clarity over work of the independent commission on banking and other regulators Uncertainty about banking regulation is holding back government plans to sell shares in Lloyds Banking Group and Royal Bank of Scotland, the body that controls the taxpayers’ stakes in the bailed-out banks warned on Monday. UK Financial Investments (UKFI), in its annual report , puts the taxpayer losses for the two banks at £13bn, but makes clear that it is ready to seize any opportunity to begin selling the shares. David Cooksey, chairman of UKFI, points to a number of regulatory uncertainties, notably the independent commission on banking (ICB). Chaired by Sir John Vickers, the commission has already indicated that he wants banks to “ringfence” their high street business from their riskier investment banking arm and hold more capital. “We believe it is important that the government is not seen to be a permanent investor in UK financial institutions. We therefore await further clarity emerging in relation to the work of the ICB and the other regulatory changes … before we will be able to recommend the start of the process of selling the government’s shareholdings,” Cooksey said. UKFI’s chief executive, Robin Budenberg, said that the market is being monitored “so we are ready to capitalise on suitable disposal opportunities as they emerge”. “The evolution of value in Lloyds Banking Group and RBS will be heavily determined by external factors over the next few years – in particular the speed and strength of recovery of the UK economy and the other markets in which the banks operate, and the resolution of current international and domestic policy debates on reform of the regulatory framework for banking,” Budenberg said. While shares in Lloyds and RBS remain below the average prices at which they were bought by the taxpayer – 72.2p and 50.2p – making it difficult for any sell-off to proceed, UKFI has begun the process of selling Northern Rock , nationalised in February 2008. The annual report provides more information on the options considered for Northern Rock – which has divided into a new bank that is lending again and a “bad” bank that has been merged with the mortgage book of Bradford & Bingley. “A full range of options was analysed, including a sale process where Northern Rock plc could be acquired by a new entrant or in-market player (including remutualisation through a sale to an existing mutual organisation), a standalone remutualisation and a public share offering,” UKFI said. “The risk-adjusted financial assessment indicated that a sale to a single buyer would likely deliver greatest value to the taxpayer. This assessment was principally based on the strategic premium a bidder could be willing to pay, economies of scale that might be achieved in a combination and potential bidder interest in the company,” it added. Remutualisation of Northern Rock – favoured by some campaigners for banking reform – would involve “gifting” existing shares to mutual members, UKFI said. UKFI paid £85,000 of bonuses for the performance year 1 December 2009 – 30 November 2010, of which £36,000 was paid out and £49,000 was retained because bonuses are deferred over three years and subject to clawback in line with the arrangements now in place at the banks in which UKFI has stakes. The average prices at which the taxpayer bought shares in the banks falls to 63.1p for Lloyds if fees paid to exit the asset protection scheme – which protects toxic loans for RBS – are included and to 49.9p if fees paid by RBS are included. UKFI’s calculations on the losses on the stakes is taken at 31 March when RBS was trading at 40.49p and Lloyds at 58.09p. The shares have fallen further since then, to 33.5p and 43p respectively. Banking Financial sector Lloyds Banking Group Royal Bank of Scotland Regulators Jill Treanor guardian.co.uk

Posted by on July 18, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.