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Government stands to make £2.7 billion profit from Lloyds bailout

A new analysis from Hargreaves Lansdown calculates the government can now sell its remaining stake in Lloyds bank at a profit of £2.7 billion, thanks to dividends, fees, and deals struck last year to sell shares at relatively high prices.

That profit even includes making good on the promise to retail shareholders of offering them a 5% discount, and one-for-ten bonus shares, as part of the public share sale.

To just break even on the Lloyds bailout, the government only needs to sell the shares for 7.5p each.

This new calculation is much lower than the previously announced breakeven price, because it takes into account the fees received by the Treasury from Lloyds for underwriting loans in 2009, as detailed in the latest accounts from the UKFI (the organisation which manages the government’s holdings in Lloyds and RBS).

Rumours are circling that the government is considering shelving the public sale of Lloyds banks, which would be a breach of trust for hundreds of thousands of retail investors, who have been waiting for the share sale since last October.

Over 350,000 private shareholders have registered an interest in the share sale through Hargreaves Lansdown.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

‘The government has now made enough money from the Lloyds bailout that it can comfortably make good on its promise to offer shares to the public, while still making a tidy profit for the Treasury.

However the changes to the Cabinet following the referendum have raised questions over whether the government still intends to proceed with the public offer of Lloyds shares.

City institutions are no doubt licking their lips at the prospect the new Chancellor might cut private investors out the Lloyds share sale. But this would be taken as a breach of trust by hundreds of thousands of retail investors, who have been repeatedly told by the government that a share offer is coming.

Clearly the Chancellor has a lot on his plate right now, but investors would welcome some certainty over the share sale, so they can plan their financial affairs accordingly.’

Lloyds bailout in numbers

The government initially invested £20,313 million in Lloyds, spread across three tranches throughout 2009.

The government sold off about three quarters of its stake between September 2013 and March 2016, netting £16,571 million in the process. (Recent share sales have been particularly lucrative. Between December 2014 and March 2016, the government sold around 40% of its stake at an average price of 81.4p).

The Treasury has also received, or is due to receive, £373 million in dividends from Lloyds bank.

In addition it has also received £2,881 million in fees from Lloyds, £2,500 million of which comes from Lloyds’ exit fee from the Asset Protection Scheme.

Overall then, the government has received £19,825 million on an initial outlay of £20,313 million, so it is £488 million away from breaking even on the bailout.

It still has 6,509 billion shares, so that equates to a breakeven price of 7.5p.

If the government sold the shares at today’s price of 54p, while including the terms promised to retail investors (a 5% discount and one-for-ten bonus share issue on £2 billion of shares), that would net the government a further £3,199 million.

Deducting the £488 million still to be recouped, that leaves a profit of £2,711 million.

What about RBS?

The picture is very different at RBS which remains a long way from private ownership.

The government still owns 72.3% of the bank, after injecting £45,527 million in 2008 and 2009.

The breakeven price is currently £4.50, while shares currently trade at £1.80. Clearly there is a long road ahead before the government can start to think about selling Royal Bank of Scotland shares at anything approaching a decent return for the taxpayer.


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