British taxpayers may never recover the 66 billion pounds ($104 billion) used to bail out Royal Bank of Scotland Group Plc (RBS) and Lloyds Banking Group Plc (LLOY) after the Treasury’s loss on the sale of Northern Rock Plc, lawmakers said.
The House of Commons Public Accounts Committee said in a report published in London today that a lack of competition meant there were too few bids for Northern Rock. The Treasury will lose about 2 billion pounds from the bailout of the Newcastle, England-based lender, the cross-party panel said.
“The lack of competition does not fill us with confidence that the taxpayer will make a profit on the sale of the two banks which remain in public ownership, RBS and Lloyds,” the committee chairwoman, Margaret Hodge, a member of the opposition Labour Party, said in an e-mailed statement. “It is vital that the final decisions on the wholly owned banks are made with value to the taxpayer taking precedence over speed of exit.”
Chancellor of the Exchequer George Osborne sold Northern Rock to billionaire Richard Branson’s Virgin Money Holdings U.K. Ltd. last year for 747 million pounds, saying it marked “an important first step” in returning bailed-out lenders to private hands. Osborne’s predecessor, Alistair Darling, spent 1.4 billion pounds to recapitalize the lender in 2008 and split it into two units.
The government owns about 81 percent of RBS and 40 percent of Lloyds after bailing the lenders out during the financial crisis. The shares have since declined, leaving a paper loss for the U.K. of more than 25 billion pounds on the two holdings.
Weighed down by bad loans from the housing boom in the mid- 2000s, compensation claims from customers, a U.K. economy on the brink of a triple-dip recession for the first time and about 175 billion pounds of assets still to dispose of, both RBS and Lloyds are struggling to convince investors that they’ve turned their business around.
U.K. Financial Investments Ltd., the body that manages the government’s holdings in the two banks, said in March the Treasury could start selling its stake in RBS at a loss. The government has also made presentations to potential investors, including Middle Eastern sovereign-wealth funds, about a sale, two people with knowledge of the matter said in March. The stock fell 28 percent between the end of March and June, damping expectations of a disposal.
The stock has since rebounded 41 percent, and RBS last month left a government insurance program that covered its most toxic assets, removing an obstacle to a government stake sale. Chairman Philip Hampton said last month “it would be a reasonable aspiration” for the government to start selling part of its stake in the lender before 2015.
The opposition Labour Party urged the Treasury to hold on to RBS and Lloyds in order to return the investments to profit.
“The chancellor must do more to protect taxpayers in any future bank sales than he did with the loss-making sale of Northern Rock,” Chris Leslie, who speaks for Labour on financial affairs, said in an e-mailed statement. “It is possible that the Treasury will be able to recoup the vast majority of those costs and maybe more, so long as they don’t opt for fire-sales to a political timetable.”
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