Commission kills hopes of Lloyds or RBS sell-off

Uncertainty over future will force state to hold on to stakes

Hopes that that the taxpayer might soon see a return from the billions pumped into Lloyds Banking Group and Royal Bank of Scotland (RBS) have been all but written off thanks to the launch of the Banking Commission.

UK Financial Investments is understood to have all but ruled out any attempted sale of the Government's stakes beyond a small "test the water exercise". Leading bankers are understood to have given warning that even this may prove impossible because of uncertainty over the shape of the industry created by the Commission, not least the chance that the 41 per cent state-owned Lloyds could be broken up.

This means that even the "test the water exercise" is now unlikely to be attempted until after the Commission has reported its findings and the Government has made its response. Shares in Lloyds – which on Friday closed at 73.5p, down 0.62p – are just above the 72.2p level at which the taxpayer will make a small profit on its £20bn investment.

RBS, in which the Government holds an 84 per cent stake, closed on Friday at 47.47p, up 0.46p but still a shade below the 49.9p a share at which the taxpayer is in profit on the £45bn it has cost to bail out that bank.

Both banks have shown signs of returning to health in their recent results, particularly Lloyds which turned a first-half loss of £3.9bn in 2009 into a profit of £1.6bn for the first half of 2010, ahead of City forecasts.

But senior bankers and analysts agree that the Government's setting-up of the independent Commission kills off any hopes of a quick return from the taxpayer's investment, despite the Government's desperate need for revenue to cut Britain's yawning budget deficit. The Commission, chaired by Sir John Vickers, said it plans to look at possible "over-concentration" in UK retail banking as it commenced taking evidence just over a week ago.

Ian Gordon, a banking analyst at Exane BNP Paribas, said: "A sale is not impossible but it is highly unlikely. In any sale document the Commission would have to be disclosed as a material and uncertain risk factor. Both in terms of this and in terms of value maximisation, it makes sense to wait."

Mr Gordon said the Commission meant that there would be a discount attached to the shares of all UK-listed banking groups until it has published its findings. In addition to the over-concentration of retail banking in Britain, it has been asked to look at whether Britain should bring in laws to force a split between retail and investment banking operations.

HSBC, Barclays and Standard Chartered have already indicated that such a move could force them to quit Britain. The state has no investment in those banks – unlike in Lloyds and RBS – leaving them free to make such a move. Bankers believe this makes a forced break-up unlikely. However, many also say the Commission poses the biggest threat to Lloyds. The Government waived competition rules when it rescued HBoS, but the bank's holding of between a fifth and quarter of key areas such as current accounts, unsecured lending and mortgages is becoming increasingly controversial.

In response, one of Britain's most senior bankers said: "Basically, that means a sale is impossible. The biggest question facing the Commission is Lloyds. It has between 20 and 25 per cent of mortgages, current accounts and loans and there are huge competition issues. You couldn't sell any of the Government stake without reassurances that it won't be broken up."

Commission watchers have noted that Sir John was head of the Office of Fair Trading when Lloyds' attempt to take over Abbey was blocked during the early part of the last decade.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Extras
indybest
News
peopleLiam Williams posted photo of himself dressed as Wilfried Bony
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
Arts and Entertainment
The Apprentice finalists Mark Wright and Bianca Miller
tvBut who should win The Apprentice?
News
The monkey made several attempts to revive his friend before he regained consciousness
video
Extras
indybest
News
Elton John and David Furnish will marry on 21 December 2014
peopleSinger posts pictures of nuptials throughout the day
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick