David Prosser: We can still win our money back on the black horse bank

 

Outlook If the Government was forced to "mark to market" its positions on Lloyds Banking Group and Royal Bank of Scotland – the accounting requirement that regulators have imposed upon the banks when it comes to their own assets – the public finances would currently be in the region of £25bn less healthy. The taxpayer paid around £45bn for its stakes in Lloyds and RBS – 41 per cent and 83 per cent respectively – but the holdings combined are worth just £20bn today.

We will hear more from RBS this morning, but Lloyds' first-half update, published yesterday, did not, on the face of it, make terribly happy reading for anyone hoping to see the taxpayer's paper losses start to come down. The headlines were a substantial loss, a nasty exposure to the Irish crisis, only modest interest in buyers for the 600 branches that Lloyds has to sell, and fears of more regulatory pressures to come.

Gloomy stuff then. So much so that one might wonder why the new Lloyds boss, Antonio Horta-Osario, was prepared to make the jump earlier this year from Santander, where he was running a sound bank facing far fewer difficulties (and one set to IPO at some stage over the next 12 months).

Aside from the matter ofpersonal ambition, the answer is that Lloyds is not quite the basket case its lowly market valuation might have you believe – the headlines told a misleading story. Almost all of the £3.3bn loss, for example, consisted of a charge it has taken for the payment protection insurance scandal, a one-off. Bad debts are easing, Lloyds' exposure to the eurozone crisis, Ireland excepted, is relatively small, and even its Irish position does not look as parlous as it did six months ago.

On regulation, unless the Independent Commission on Banking's final report next month includes something shocking, Lloyds will be less affected than rivals with large investment banking arms. It looks to have headed off calls for the ICB to order the full-scale unwinding of its credit crunch-enforced merger with HBOS.

So where does that leave the taxpayer? Well, the first point to make is that taxpayers' biggest exposure to Lloyds comes not through their stake in the bank but via the emergency funding extended to it, chiefly from the Bank of England. And here the story is positive – at its peak, those loans totalled almost £100bn, but today the figure is down to £37bn. Indeed, one of the dampeners on Lloyds' finances is that it has now arranged more expensive private-sector funding to replace the state support.

As for taxpayers' equity stake, let us say this: on almost anyconventional yardstick, Lloyds' share price today significantly undervalues what is now an increasingly profitable bank – one-off charges aside – with market-leading positions in UK banking and mortgages, and scope for cost savings as the Lloyds-HBOS integration continues.

On the downside, realising that value is another matter entirely, chiefly because of the "structural overhang" issue. The Lloyds stake is a vast slice of equity that investors know the Government will have to sell at a discount to the price in the market. So, every time Lloyds' stock starts drifting towards the breakeven price, investors start selling in anticipation of being able to buy more cheaply from the Government. And then the price falls back again.

Still, there are ways round the problem – not least the mechanism promoted earlier this summer by Nick Clegg for handing out shares to all British adults – and it is a technical issue rather than fundamental. Despite some of the gloomy forecasts being made in the wake of Lloyds' update yesterday, there is still every chance of the taxpayer recouping its investment in the end.

Sport
Thiago Silva pulls Arjen Robben back to concede a penalty
world cup 2014Brazil 0 Netherlands 3: More misery for hosts as Dutch take third place
Sport
Robin van Persie hands his third-place medal to a supporter
Van Persie gives bronze medal to eccentric fan moments after being handed it by Blatter
News
Ian Thorpe had Rio 2016 in his sights
people
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

PROMOTED VIDEO
News
scienceScientists have developed a material so dark you can't see it...
News
Monkey business: Serkis is the king of the non-human character performance
peopleFirst Gollum, then King Kong - now the actor is swinging through trees in Dawn of the Planet of the Apes
Arts and Entertainment
Blackman: Landscape of children’s literature does not reflect the cultural diversity of young people
booksMalorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Voices
Mrs Brown's Boy: D'Movie has been a huge commercial success
voicesWhen it comes to national stereotyping, the Irish know it can pay to play up to outsiders' expectations, says DJ Taylor
Arts and Entertainment
Curtain calls: Madani Younis
theatreMadani Younis wants the neighbourhood to follow his work as closely as his audiences do
Life and Style
Douglas McMaster says the food industry is ‘traumatised’
food + drinkSilo in Brighton will have just six staple dishes on the menu every day, including one meat option, one fish, one vegan, and one 'wild card'
Life and Style
Once a month, waistline watcher Suran steps into a 3D body scanner that maps his body shape and records measurements with pinpoint accuracy
techFrom heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
News
Soft power: Matthew Barzun
peopleThe US Ambassador to London, Matthew Barzun, holds 'jeans and beer' gigs at his official residence. He says it's all part of the job
Sport
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
News
Gavin Maxwell in Sandaig with one of his pet otters
peopleWas the otter man the wildlife champion he appeared to be?
News
Rowsell says: 'Wearing wigs is a way of looking normal. I pick a style and colour and stick to it because I don't want to keep wearing different styles'
peopleThe World Champion cyclist Joanna Rowsell on breaking her collarbone, shattering her teeth - and dealing with alopecia
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

Otter man Gavin Maxwell's bitter legacy

The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

Joanna Rowsell: 'I wear my wig to look normal'

The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

Bill Granger's quick and delicious marinades

Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
Germany vs Argentina World Cup 2014 preview: Why Brazilians don't love their neighbours Argentina any more

Anyone but Argentina – why Brazilians don’t love their neighbours any more

The hosts will be supporting Germany in today's World Cup final, reports Alex Bellos
The Open 2014: Time again to ask that major question - can Lee Westwood win at last?

The Open 2014

Time again to ask that major question - can Lee Westwood win at last?