Thursday, 19 September 2013

Loss, not profit, from the Lloyds Bank sell-off


By flogging off Lloyds Bank shares at 75p when,  in the 2008 rescue, it bought them at 73.6p the government claims to have made a profit for the tax payer of nearly £60m (actually, by long multiplication, since my calculator batter has run out, £58.8m)

However, since 2008 there has been inflation, not as much as in some five year periods but certainly some, and certainly more than wages have risen.  A useful site http://www.whatsthecost.com/cpi.aspx tells me that, after accounting for inflation, the present value of the 73.6p today is 83.4p.  In other words those shares, at 75p,  have been sold off at a loss of 8.4p per share.  Since 4.2 billion shares were sold, that's a real loss to the government /taxpayer of £352.8m.

This calculation is not rocket science so why aren't the media screaming that Osborne is lying and we, the public, are being robbed.

What's more, though perhaps not quite as costly to the public purse, the Chief Executive of Lloyds, Mr Antonio Horta-Osoria,  stands to collect a bonus of more that £2.2m if the shares stay above the 73.6p value paid in 2008, rather than the present value of 83.4p.  Those who make these contracts certainly know how to write them in favour of the "haves."

4 comments:

  1. They only sold part of the shares at this offer...6% of Lloyds Banking Group was sold to institutional investors at a placing price of 75p per share.

    It means the taxpayer stake in Lloyds has been reduced from 38.7% to 32.7%.

    We are not in the business of owning banks. The money released can be applied to real projects (or deficit reduction) not just trying to market time an exit. Stock is already at 77p so our residual stake is worth more.. Moreover as the amount held goes down then the "overhang" sensation eases and the stock rises...Stock Market 101

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    1. True, but that 77p is still below the present value of what was paid for the shares in 2008, so we, the public, are still making a loss. Even if and when the price of the shares rises to 83.4p (and more to compensate for the inflation which will happen between now and whenever that happens) we must still consider the opportunity cost of tying up that vast amount of public money in propping up the bank, with no interest or dividends, rather than using it for the "real projects" you mention.

      I don't agree with you that "we" (ie the public sector) are not in the business of owning banks. I believe that both Lloyds and RBS should be retained in the public sector. one of them split into regional banks charged with providing low-cost loans to local enterprises (as I believe happens in Germany) and the other merged with the Green Investment Bank to provide "real money" rather than the present tit-bits, to this vital area.

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  2. Snouts in the trough and idiots in the press.

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  3. If you keep your money in the bank at these interest rates you're not particularly likely to outrun inflation anyway. We still have much of the bank left to sell, in addition to RBS, and the priority is not to profit but to release money tied up in the banks and to return them to private ownership.

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