By Tash Shifrin
6 November 2009
Economists have warned that ministers’ latest bank bail-out package could still produce losses to the public purse.
Chancellor Alistair Darling announced a fresh injection of £39bn capital into the Royal Bank of Scotland and Lloyds Banking Group on November 3 – adding to last October’s £37bn bail-out.
Prime Minister Gordon Brown said the end result of the deal would be that ‘the banks will be paying money to the British public and not the other way around’.
The package will give RBS £25bn of extra capital funding and provision for another £8bn to protect against what the Treasury called ‘a worst-case scenario’. The deal will insure the £282bn of the bank’s assets against serious losses.
Lloyds will no longer remain in the Asset Protection Scheme, and announced plans to raise £21bn through a combination of a £13.5bn rights issue and a £7.5bn debt for equity swap. But the government will
pump in another £5.7bn to retain its 43% shareholding.
The Treasury said the package would reduce the liabilities to be borne by the public finances by more than £300bn. But it was likely to increase the government’s net cash requirement by £13bn on the Budget figures.
Professor Ray Barrell, director of forecasting at the National Institute for Economic and Social Research, told Public Finance that the new package was ‘absolutely necessary’, adding: ‘It’s a sensible policy because we want zero risk of the banks collapsing.’
But he warned that it was ‘not clear’ how much the taxpayer might recoup when the government eventually sells its stakes in the banks. ‘There is no guarantee [the Treasury] will get the equity stake back. It may do, or it may not get back all of it.’
But he noted that European Union state aid rules that require RBS to sell off its Direct Line and Churchill insurance businesses would help recover the taxpayer’s stake.
Charles Davis, senior economist at the Centre for Economics and Business Research, warned: ‘It still looks like there could be some pretty heavy losses with RBS. Ultimately the buck is going to stop with the taxpayer.’
Giving evidence before the Commons Treasury select committee on November 4, John Kingman, chief executive of UK Financial Investments, which manages the government’s share in the banks, warned RBS was not yet secure. ‘It’s probably going to take years to say this bank is being run in a way that ultimately we would want it to be run,’ he told the MPs.
6 November 2009
Economists have warned that ministers’ latest bank bail-out package could still produce losses to the public purse.
Chancellor Alistair Darling announced a fresh injection of £39bn capital into the Royal Bank of Scotland and Lloyds Banking Group on November 3 – adding to last October’s £37bn bail-out.
Prime Minister Gordon Brown said the end result of the deal would be that ‘the banks will be paying money to the British public and not the other way around’.
The package will give RBS £25bn of extra capital funding and provision for another £8bn to protect against what the Treasury called ‘a worst-case scenario’. The deal will insure the £282bn of the bank’s assets against serious losses.
Lloyds will no longer remain in the Asset Protection Scheme, and announced plans to raise £21bn through a combination of a £13.5bn rights issue and a £7.5bn debt for equity swap. But the government will
pump in another £5.7bn to retain its 43% shareholding.
The Treasury said the package would reduce the liabilities to be borne by the public finances by more than £300bn. But it was likely to increase the government’s net cash requirement by £13bn on the Budget figures.
Professor Ray Barrell, director of forecasting at the National Institute for Economic and Social Research, told Public Finance that the new package was ‘absolutely necessary’, adding: ‘It’s a sensible policy because we want zero risk of the banks collapsing.’
But he warned that it was ‘not clear’ how much the taxpayer might recoup when the government eventually sells its stakes in the banks. ‘There is no guarantee [the Treasury] will get the equity stake back. It may do, or it may not get back all of it.’
But he noted that European Union state aid rules that require RBS to sell off its Direct Line and Churchill insurance businesses would help recover the taxpayer’s stake.
Charles Davis, senior economist at the Centre for Economics and Business Research, warned: ‘It still looks like there could be some pretty heavy losses with RBS. Ultimately the buck is going to stop with the taxpayer.’
Giving evidence before the Commons Treasury select committee on November 4, John Kingman, chief executive of UK Financial Investments, which manages the government’s share in the banks, warned RBS was not yet secure. ‘It’s probably going to take years to say this bank is being run in a way that ultimately we would want it to be run,’ he told the MPs.
