Jeremy Warner: Taxpayer gets £2.3bn payback from Lloyds

Outlook: Once confidence goes, there is almost no amount of capital that can guarantee a bank's safety

Sometimes it seems there is no justice. First into the crisis and in many respects the root cause of all our economic woes, the banks show every sign of being first out. Investment banking profits are once more in fine fettle, bonuses are returning, and in the US, banks are queuing up to repay the "Tarp" money used barely more than six months ago to bail them out.

Even in Britain, share prices have recovered sufficiently to allow Lloyds Banking Group to complete a rights issue and buy back £4bn of the preference shares the Government vested in the combined Lloyds TSB/HBOS group at the height of the banking crisis last October.

Some £1.7bn of the proceeds is being reinvested by UKFI in subscribing to its share of the rights issue, so the net payback to the Government is "only" £2.3bn. It's going to be a long old haul before the entire £17bn of taxpayers' money used to bail out Lloyds Banking Group is repaid, and it will take even longer to get back the £20bn of public money invested in Royal Bank of Scotland.

All the same, this is plainly a positive development for the banking sector as it begins the long march back to financial health. Even as little as six months ago, it would have been impossible for virtually any bank to access the stock markets for extra capital. Yet last week we saw Abu Dhabi place its share stake in Barclays at a bumper profit. Similarly in the US, stock markets again seem to be open to banks to raise money so that the Tarp funds provided by the American taxpayer can be repaid.

So extreme and unpredictable was the scale of the banking crisis we've just been through that it would still be unwise to describe it as now largely over. Yet though there is plainly a great deal of pain in terms of bad debt experience to come, nobody believes any longer that a major bank is about to go bust or needs to be nationalised outright.

Less easy to answer is whether more capital still is needed before the banks get back to creating credit on the scale necessary to bring about a return to sustained economic growth. In most banks, the main imperative is still that of shrinking the balance sheet rather than expanding it.

Banking depends vitally on confidence to stay afloat. Once it goes, there is almost no amount of capital that can guarantee a bank's safety. During the boom, investors, depositors and indeed regulators, allowed banks to operate on wafer-thin capital and nobody cared a fig about leverage, balance sheet expansion and funding. During the bust, it went the other way, when even banks with comparatively high levels of capital became vulnerable to a run.

Sentiment is now reviving again. The careless ways of the boom won't return for many years. Even if markets felt minded and confident enough to recreate them, regulators won't allow it. But spreads are narrowing again, credit markets are reopening, and thanks in part to the Government's "asset protection scheme", investors can feel more confident about the balance sheets of even the most bombed-out banks.

The Government won't get credit for it, and it would obviously have been better had the banking crisis not been allowed to develop in the first place, but the way in which the authorities acted to underpin confidence as the crisis reached its crescendo counts as a rare public policy success amid the present rubble, which may even have prevented a bad recession from turning into a depression.

As for Lloyds, the bank is far from out of the woods. Lloyds will still be lossmaking this year, even taking account of the nearly half a billion it will save itself in coupon payments on the preference stock. Yet when the rights issue was first launched in March, there was a widely held assumption that the rights would be left with the Government, which was underwriting the issue. In fact, the outcome could scarcely have been more positive.

To complete the picture of recovery, Lloyds needs a new chairman to replace Sir Victor Blank, who is taking the bullet for the bank's disastrous merger with HBOS. UKFI, which holds the Government's 43 per cent stake, would be happy with an executive chairman, instead of the more usual non-executive, if the right candidate could be found. Indeed, this is perhaps what the bank needs – a big hitter – after all that's occurred. Might Mervyn (now Lord) Davies, former chairman of Standard Chartered, be persuaded? He can't be much enjoying his new role as Trade minister. Serving a government in its death throes was not what he signed up for.

News
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features staging of a playground gun massacre
Travel
travel
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
PROMOTED VIDEO
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
News
i100This Instagram photo does not prove Russian army is in Ukraine
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
News
Morrissey pictured in 2013
people
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
filmReview: Sometimes the immersive experience was so good it blurred the line between fiction and reality
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
art
News
i100
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Environment
Tyred out: should fair weather cyclists have a separate slow lane?
environmentFormer Labour minister demands 'pootling lanes' for women cyclists
News
people
Sport
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
Latest stories from i100
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

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices