There is indeed some bad news for the UK taxpayer. It appears that the entire amount of £66 billion, which was accumulated from taxpayer money in a bid to revive the sagging fortunes of RBS and Lloyds, could have been lost forever! This is what a report generated by a committee comprising of imminent members of the UK parliament claims. Margaret Hodge, the chairperson of the committee, has issued an official statement in which she warns that the pounds invested for the revival of Lloyds and the Royal Bank of Scotland may be irrecoverable. The same was declared in a report concerning the sale of Northern Rock.
Northern Rock, which is a small mortgage lending business house, was sold off to Virgin Money in the past year. This resulted in a cumulative loss of £469 million as far as taxpayer investment was concerned; following the spinning off of its bad debt. According to the committee, the accumulated surrounding the Northern Rock came to almost £2 billion. There was alleged mismanagement once Northern Rock was nationalized.
As Hodge commented, the treasury was not in a position to respond to the banking crisis because of the sheer lack of understanding and skill. The nationalizing process was slow and this has gone on to make the loss slightly difficult to avoid. Once it was finally nationalized, it also failed to challenge the business plan that was put forth by the bank management, proposing a split. According to an official spokesperson of Virgin Money, the sale of Northern Rock Plc was a preferred option. It led to handsome returns for taxpayers on account of a fair and competitive process.
Initially, the UK governing bodies had planned a selloff of Lloyd and RBS shares. However, their share prices remain heavily discounted at the time of the stake purchase by the government. Philip Hampton, the chairman of RBS, went on to state that the government would be exiting its investment by 2015. And its chief executive Stephen Hester has suggested that the government must be selling off its stake gradually, as the price would be hopefully rising over time.
Hodge continued to state that the lack of competition with respect to Northern Rock will not make them confident that the taxpayer would earn profits against the sale of RBS and Lloyd. The government would be required to sell off its 82% stake in Royal Bank of Scotland, around 500p for recovering its investment. At present, RBS stocks are trading at 283p. Besides, the British Taxpayer also owns around 40% of Lloyds, which found itself in trouble when it was forced to acquire HBOS. So, even if the taxpayers hope for a breakeven for its investment in Lloyds, the shares would have to sell for 63p. The current trading price is 43p.
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