With Lloyds back in profit, hopes have been raised that the taxpayer could soon be quids in from the £20bn the Government invested in the bank on our behalf, whether we liked it or not. Quite how soon, however, depends on whose numbers you care to believe.
When all the various injections of capital into Lloyds are accounted for, including rights issues, conversion of preference shares into ordinary shares and straightforward bailout cash, Lloyds shares cost the taxpayer an average 73.6p. However, the Government received a substantial underwriting fee from the bank as a result of its £13.5bn rights issue at the end of last year (basically, for agreeing to take up shares that private investors did not want). For this service the taxpayer received £376m.
If you include this in the calculation, the price at which the taxpayer's investment is in profit comes to 72.2p.
But if you follow the methodology put forward by UK Financial Investments, the body set up by the Treasury to oversee the taxpayer's investments in the banking system, it's even easier than that. Lloyds paid £2.5bn to the Treasury for the "implicit capital support" provided when ministers cooked up the asset protection scheme to insure Lloyds (and Royal Bank of Scotland) against billions of pounds of risky loans going bad at the height of the financial crisis and the resultant economic downturn. If you factor that money into the calculations, the Government only needs the shares to be at 63.2p for it to be showing a profit. Yesterday, Lloyds shares closed at 68.17p.
What's wrong with the calculation is this: all those underwriting fees and the asset protection scheme money is really only paying the Government back its own money for what is effectively insurance. If that insurance had been called, the taxpayer would have had to come up with much more than the £20bn or so that the state has already pumped into the bank. Therefore, including it in the calculations is disingenuous at best. Did someone mention that there's a general election on?
In reality, taxpayers will not see a real profit on their reluctant investment in Lloyds until the shares rise above the first figure – 73.6p – and even then it will only be a paper profit. It's a bit simpler when one turns to Royal Bank of Scotland. At 56p yesterday, the taxpayer is in profit based on the average price of the shares the taxpayer bought for £45.5bn (49.9p, if underwriting fees are considered; 50.2p without). But, with market confidence still thin (and a perception that RBS shares, at least, are overvalued), it will be years before the Government can sell. It will be years before the bankers' bailout cash is building any hospitals.