The Public Accounts Committee has just released a report into the government’s sale of Northern Rock. It doesn’t look good. The fact that government managed to find a buyer at all was ‘fortunate’, it says, but Lloyds and RBS may not be sold ‘for many years’.
The report was commissioned in an attempt to work out whether the acquisition of Northern Rock in 2008, and its subsequent sale in 20011, were managed well by the Treasury and UK Financial Investments (which now manages the state’s holdings in the banks). Well, the taxpayer is still set to lose around £2bn on the Northern Rock’s rescue, conclude MPs, and the deal does not bode well for future divestments of government stakes in RBS and Lloyds.
If the government is to recoup the cash it ploughed into RBS and Lloyds – the state owns 82% of the former and 40% of the latter – it may have to wait many years, reckon MPs. It was lucky to find a buyer for Northern Rock in Virgin Money as there were only two offers on the table at the time. ‘The Treasury was fortunate that one of them had a strategic interest in purchasing a small retail bank at the end of 2011,’ reads the committee's report.
Finding buyers for these other two banks could prove especially difficult, it adds, given the sorry state of the banks’ balance sheets post PPI and Libor. ‘The low level of competition does not give us confidence that the taxpayer will make a profit on the sale of RBS or Lloyds,’ says the report.
MPs have also found that the Treasury and later UKFI were too slow to shake-up Northern Rock’s management team after bailing out the bank. Three years later, it was still losing money because the government lacked the teeth to force Northern Rock’s board to change its strategy. The one target it did set – that the bank should lend £15bn during its time under public ownership – was also ignored. Northern Rock lent just £9.1bn.
‘The Treasury should ensure that lessons it learns from the sale are captured and can be applied to future disposals, including any sale of RBS or Lloyds,’ warns the report. But, given the current climate, it seems unlikely that government will get the opportunity to follow that advice any time soon. According to BBC business editor Robert Peston, sources in RBS say that while it’s possible that some shares in RBS could be sold in 2014, it is unlikely any shares in Lloyds would be sold before 2015.
So that whole 'temporary public ownership' thing isn’t so temporary after all….