MINISTERS have been warned not to rush into a politically motivated sale of taxpayers' £65 billion shareholding in Lloyds Banking Group and the Royal Bank of Scotland ahead of the general election.
The warning came from the main opposition parties, as an annual report from the bailed out banks' watchdog was published.
UK Financial Investments (UKFI) said it could take years to sell all of the government's stake in the two banks.
But its a
cting chairman, Glen Moreno, also revealed that the sell-off could begin within a year.
So far every UK household has £3,000 invested in the two banking giants. Shares have also dived by a third since the banks were rescued by the government.
UKFI said that taxpayers' liability if shares were to be sold now would be £10.9bn.
Read Bill Jamieson's analysis hereIn its first annual report, the body set up by the Treasury, said: "Our own task of returning these investments to the private sector is challenging.
"The amounts involved are very large, and a successful disposal of our holdings will require professionalism and patience.
"We all have a stake in UKFI's success. Skilled disposal of these investments will recoup tens of billions of pounds for the taxpayer."
Ministers have previously made clear their desire to dispose of the shares as quickly as it was practicably possible, when market conditions recovered.
But opposition parties last night warned against a sale ahead of the general election, which is due to be held by next spring.
Vince Cable, the Liberal Democrat's treasury spokesman, who predicted the financial crisis, also questioned the predicted losses. He said the state's liability if the shares were sold now would be closer to £20bn.
"There is no justification for an early sell-off. UKFI should ensure that any government attempt at a quick sale before an election is stopped in its tracks," he said.
"Taxpayers bailed the banks out and, in return, UKFI must start to act in the public interest and make it clear to the banks they own that they should operate in the same way."
Shadow chancellor George Obsorne said: "In the run-up to the election, UKFI should be protected from pressure from this increasingly desperate government that is more interested in its own short-term political interests than the long-term interests of taxpayers."
SNP treasury spokesman Stewart Hosie said taxpayers deserved a return for the "astronomical sum" poured into Lloyds and RBS.
"The Prime Minister's terror that the next UK government might claim credit for selling these shares at a profit must not be allowed to cloud his view and prompt a fire sale," he added.
The government set up UKFI in December to manage the stakes Westminster picked up after a £37bn bailout. It employs 11 people and is run from a small set of offices in the Treasury.
Initially, the government poured £20bn into Lloyds Bank after its botched takeover of HBOS and £14.5bn in struggling RBS. Those investments are now worth £23.6bn on 30 June, a loss of £10.9bn.
Shares would have to be sold at 122.6p for Lloyds and 50.5p for RBS for taxpayers to recover their money. But the liabilities are greater because the government is also guaranteeing billions in possibly toxic assets held by the banks.
The taxpayer currently owns 70 per cent of RBS and 43 per cent of Lloyds, but after extra shares are issued under a scheme to insure the banks' toxic debts, worth £585bn, this will rise to 84 per cent and 62 per cent respectively.
Mr Moreno, who is the acting chairman of UKFI and has waived his right to a salary, said: "Make no mistake – this ain't over yet. We are a long way away from normalcy in the world's financial markets."
Mr Moreno said the body's aim was to achieve "sound, prudent and profitable banks", and added: "UKFI is not, I repeat not, a short-term investor."
However, later, in his first broadcast interview, he suggested that the sale of shares could start sooner. "I would not be at all surprised to see some transactions occurring within a year or so… and continuing over the next several years," he told the BBC's World at One.
The sale of UKFI's stakeholding would not come at once but be released gradually.
UFKI pointed out that there have only been three sales of more than £10bn in shares at any one time. These were sold by banks HSBC, RBS and UBS.
Yesterday it also emerged that RBS chief Stephen Hester could face tougher targets to receive his £9.6 million salary.
Sources said Mr Hester would have to meet other goals on profitability and performance beyond a share price target.
UKFI employee numbers will rise to 15 when it takes over supervision of Bradford & Bingley's and Northern Rock's loan books, if it receives EU approval.
Buy-to-let loan defaultBRADFORD & Bingley became the first stop for lenders in the buy-to-let boom which came to a shuddering halt with the slump in house prices.
Its £42 billion mortgage book was taken over by the government last year while retail operations were sold to Spanish banking giant Santander.
Branches are now in the process of being rebranded and the B&B name will disappear from the high street.
B&B recently defaulted on three classes of loan agreements.
No explanation was given and, as this is now a state-owned entity, higher standards of disclosure had been expected.
Taxpayers count costTHE government now holds 39.6 billion ordinary shares in Royal Bank of Scotland, equivalent to 70 per cent of the voting capital.
The cost was just over £20 billion or an average price of 50.5p a share.
The value of this investment as at June 30 was £15.3 billion. So UKFI (aka the taxpayer) is currently sitting on a loss of £4.7 billion.
Every 1p move in RBS shares changes the value of this huge taxpayer stake by £393 million. At last night's price for RBS of 36.2p, the shares would need to rise almost 40 per cent for the taxpayer to break even.
However, this is by no means the end of the taxpayer exposure. Under the Asset Protection Scheme covering some £325 billion of RBS' problem assets, RBS will bear a first loss amount of any of these loans go sour. Thereafter losses will be borne 90 per cent by the taxpayer and 10 per cent by RBS.
The government has agreed to inject more capital of up to £19 billion the form of 38 billion non-voting B shares. In total this would bring the government's shareholding up to 84 per cent of the total capital. But the voting share would remain at 70 per cent.
New giant, new lossesTHE government holds 11.8 billion ordinary shares in Lloyds Banking Group – 43 per cent of the voting capital.
This cost £14.4 billion, or an average price per share of 122.6p. The value at the end of June was £8.3bn. So the loss stands at £6.2bn.
For the taxpayer to break even on this investment, shares in Lloyds would need to rise 90 per cent from their level last night of 64.5p. As with RBS, the taxpayer liability does not stop here. Under the terms of the Asset Protection Scheme, covering £260bn of problem loans, the government will receive 37.1bn non-voting shares – bringing its holding up to 62 per cent of the total share capital – though the voting stake would remain at 43 per cent.
The Lloyds group was formed in January through the controversial merger of HBOS and Lloyds TSB. It is the largest retail bank in the UK and operates a range of businesses, including Scottish Widows, Cheltenham & Gloucester, Clerical & Medical, as well as Lloyds TSB, Halifax and Bank of Scotland.
The European Union competition commissioner has warned that she will press for divestments.
Bank that rocked UKNORTHERN Rock was the first UK bank to succumb to the financial crisis with a dramatic run on its branches in the autumn of 2007.
The government nationalised the stricken business in February 2008 after a failure by the tripartite system of banking regulation to detect its over-reliance on wholesale money markets at an earlier stage.
UK taxpayers are now subsidising the bank in loans and guarantees to other lenders to the tune of about £55 billion.
A recent proposal for Northern Rock to be split in two has triggered concerns from the European Commission, which must approve the restructuring plan under state aid rules.
NR submitted a plan to separate out a "good" bank which would take more than £19.5bn of retail deposits, wholesale deposits and some mortgage loans. The rest of the bank's mortgage assets, including those held in its Granite securitisation programme and its government loan, would be placed into a "bad" bank. The Commission said it "doubts at this stage that the aid measures included in the new restructuring plan are compatible with the common market".
