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.

Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
Arts and Entertainment
Ben Affleck stars as prime suspect Nick Dunne in the film adaptation of Gone Girl
filmBen Affleck and Rosamund Pike excel in David Fincher's film, says Geoffrey Macnab
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Life and Style
fashionThe supermodel on her career, motherhood and Cara Delevingne
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
ebooksAn unforgettable anthology of contemporary reportage
Greg Dyke insists he will not resign as Football Association chairman after receiving a watch worth more than £16,000 but has called for an end to the culture of gifts being given to football officials
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
premier league
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

COO / Chief Operating Officer

£80 - 100k + Bonus: Guru Careers: A COO / Chief Operating Officer is needed to...

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments