Osborne ready to sell Lloyds
By Richard Johnstone | 20 June 2013
Chancellor George Osborne has confirmed that he has taken the first step towards selling the government’s stake in the bailed-out Lloyds Banking Group. He said the Treasury was now ‘actively considering’ options for share sales.
In his annual Mansion House speech in the City, delivered last night, Osborne also said that privatisation of the government’s stake in Royal Bank of Scotland remained ‘some way off’.
Confirming that the government was looking to sell its 39.8% stake in Lloyds, which was bailed out after it took over the beleaguered Halifax Bank of Scotland, Osborne said the first block would be sold to institutions such as pension funds. However, an offer of shares to the general public would be considered for additional tranches.
Although there was also ‘no pre-fixed timescale’ for the sale, the decision to divest was the next stage in the government’s plan to take the banking system from ‘rescue to recovery’, he added.
‘Lloyds is in a good position. Investor interest is growing. And shares are already trading at around the price where selling would reduce the national debt. That’s something we all want to see. I can announce that we are actively considering options for share sales in Lloyds.
‘So five years on from the financial crisis, we can now take the first steps to returning Lloyds to the private sector where it belongs.’
However, Osborne added that moves to return Royal Bank of Scotland to private ownership would not be rushed.
‘I don’t want a quick sale of our RBS shares. I want the right sale – the right sale for the British people. I will only sell our stake in RBS when we feel the bank is fully able to support our economy and when we get good value for you, the taxpayer. In our judgement, when it comes to RBS, that moment is some way off.’
But in preparation for a sale, ministers would investigate the case for splitting RBS into two and creating a ‘bad bank’ of risky assets.
Osborne said that, despite some progress since being bailed out, RBS, which is 81.7% owned by taxpayers, remained weighed down by too many poor assets. Creating a ‘bad bank’ to hold these, which would be wholly government owned, could allow RBS to focus on the good parts of its business, he said.
A similar breakup was undertaken when the government rescued Northern Rock in the credit crisis. Osborne said that, with hindsight, the same should have happened to RBS in 2008.
‘The question before us now is not about what happened then, but what should happen now. Is taking bad assets that are still weighing down RBS out of the bank altogether the right answer today?
‘I can tell you today that we will urgently investigate the case for taking the bad assets – those mistakes of the past – out of RBS. We will judge whether this will allow the bank to focus on its future supporting the British economy. We will see whether it's right for Britain to, in effect, see RBS broken up.’
A ‘swift’ review will now be conducted by the Treasury, and a decision on whether to implement the split will be made in the autumn. A final decision will depend on no additional taxpayer funding being required. Any split in the bank would have to meet the objectives of supporting the British economy, being in the interests of taxpayers, and accelerating privatisation, he said.
‘If the review reveals that it would not achieve these things, then we won’t do it,’ he added.
In the speech, Osborne also warned that the situation in the eurozone remained ‘fragile’.
However, he said recent economic figures in Britain suggested that the economy was ‘healing’.
‘We are moving from rescue to recovery. But while Britain has left intensive care, we still need to secure the recovery – and make sure we continue to treat the ailments that brought us low in the first place. Full recovery won’t be easy but I won’t let up in my determination to put right what went so badly wrong.’