Could we make a killing on our bank stakes?

Apparently the Government is already sounding out potential buyers for its Lloyds and RBS stakes...

Last Updated: 31 Aug 2010

The UK government is already in talks with foreign and UK investors about selling our recently-acquired bank stakes, according to rumours emanating from Whitehall – and could even start cashing in before the year is out. Apparently UK Financial Investments (the government body set up to oversee the taxpayers’ stakes) has been sounding out British fund managers and international sovereign wealth funds about buying some of our shares in Lloyds and the Royal Bank of Scotland. So it’s still perfectly possible we’ll end up flogging them for a decent profit...

The reports suggest that investors are starting to warm to the idea of buying into the banks, now it looks as though the worst of the economic crisis is behind us. As we said yesterday, the events of the last year or so have forced some of the competition out of the UK banking market (the Icelandic and Irish banks, for example) – so once they’ve got their house in order, Lloyds and RBS will presumably have a great chance of bouncing back.

But although it's easy to see what the attraction would be for buyers, the logic of the Government starting to sell up is slightly less compelling. After all, both banks are still trading well below the price at which the taxpayer bought into them (41p vs 65p for RBS, and 98p vs 173p for Lloyds), so in an ideal world UKFI would probably hold onto them for as long as possible. However, as you may have noticed, the Government is skint - so presumably, it's keen to start replenishing the coffers at the earliest possible opportunity. Arguably, this only suits potential buyers, not the taxpayer (although even this Government isn't stupid enough to flog the entire stake at once - apparently it's likely to take years to sell down the whole thing).

One interesting question is whether UKFI might find itself in hot water if it tries to sell the stakes to some big Asian sovereign wealth fund. In practice it’s no different to Barclays’ situation (which is part-owned by the Singapore fund Temasek, for now at least). But there may be some political opposition to Government-owned financial assets – assets that are clearly of systemic importance to our economy, as recent events have proved – being sold overseas, even if these funds turn out to be the highest bidders. (And you might also argue that given how badly the whole globalised finance thing worked last time around, it'd be safer not to).

However, that’s unlikely to be the Government’s only option. Most of the big UK fund managers have been selling out of the banks as their share prices have plummeted, and UKFI is apparently keen to get them back on board. The FT reports that a retail investor offering is also being considered, which sounds very sensible to us – having footed the bill for the banks’ rescue, it would be quite nice if we proles were given the chance to share in any financial upside of the banks’ recovery...

In today's bulletin:

Marks & Spencer slashes dividend as profits dip
Could we make a killing on our bank stakes?
Deflation worsens as retail prices drop at record rate
A better-than-even chance of losing your money
WolframAlpha, the Google killer?

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