Investment View: Note to Treasury... be honest about the banks' values

I’d rather have my money on the blue eagle than the black horse at the moment

If Stephen Hester and Sir Philip Hampton get their way you'll get a chance to buy into the biggest privatisation this country has seen in 2014. But should you get in early? RBS's big two have set that as the target for the bank to be in shape for the first sale of the state's 81 per cent holding. Bosses don't usually set those sort of targets unless they feel they are racing certainties in the event of anything other than a financial earthquake because they can easily become millstones around their necks if things go wrong.

Of course getting RBS in shape for sale is one thing; actually starting the process is quite another. For the taxpayer to break even on the £45bn pumped into RBS the shares will need to break through the 500p barrier. After recent falls they'll need to increase in value by around two-thirds to do that. However confident you are about RBS, it's hard to see it happening over the next year.

RBS might want the Government out of the way – it would help the bank to avoid persistent questions about the morality of a state-owned bank funded by taxpayers of very modest means paying seven-figure bonuses. But it would be politically very difficult.

However, if RBS resembles a normal, healthy financial institution by next year the shares right now would be bargains.

Here's the problem. Investec's Ian Gordon reckons that it might not be until 2017 that RBS produces a return on capital that meets its cost of capital, in other words, that it becomes a sufficiently profitable bank to make an attractive investment proposition.

The UK economy isn't in great shape, and there remain persistent worries that RBS may have to raise fresh capital, although plans to float off part of Citizens, the US arm, should help there.

There may also be further fines to pay over Libor fixing, and we should never forget the potential of a big hit from civil litigation claims somewhere down the line.

RBS shares trade on a shade below 70 per cent of their net asset value, much less than other banks, but the discount is justified.

Mr Gordon is a seller, but to my mind the share price tumble of recent days is starting to make RBS look interesting again, if only for gamblers. Buy, if you're of a mind to speculate.

Lloyds is a different animal. The shares have shown none of the shakiness of RBS. With most of the nasty stuff out of the way, it seems realistic that the Government will start to dispose of its stake in the bank rather sooner, maybe sometime this year, with the figure of 61p being rumoured as the likely trigger point.

I have my doubts. As Mr Gordon points out, 61p is a contrived number. It includes, for example, the £2.5bn the company paid as a fee for the asset protection scheme. Which was an insurance policy Lloyd's would have been able to access should things have got really nasty. It is cynical to include it in the calculation.

The real buy-in price was 73.6p. Such messing around with the numbers to get the "right" figure for a sell-off is one reason why people don't trust politicians. Treasury take note. If you plan to sell a tranche of Lloyds at a loss, be honest about it.

Treasury take note x2. If a big shareholder puts it about that they are willing to sell at 61p, that creates a ceiling for the shares.

In the meantime, Lloyds trades at about book value, in other words, the shares' combined value equals the combined net asset value of the company.

For me, that's high enough. How you view Friday's results depends on how you slice and dice the numbers. Earnings per share, for example, were less than the City had forecast, but on other numbers they were slightly ahead of expectations.

One thing to like about Lloyds is that while there may be a (probably smallish) hit from the Libor fixing scandal later this year, most of the bad stuff should now be on the books thanks to the £1.8bn fourth-quarter top-up to provisioning for mis-selling. Unless the UK economy gets really nasty, it will look something like a normal bank this time next year.

As I've said before, Barclays looks like the best bet among the UK banks at the moment and I would prefer to have my money on the blue eagle rather than the black horse, at least for the time being. Take profit, shift into Barclays

Start your day with The Independent, sign up for daily news emails
Barn owls are among species that could be affected
charity appeal
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy as ECB finally wield the axe
Life and Style
food + drink
John Profumo and his wife Valerie Robson in 1959
voicesWard committed no crime, and the truth is still being covered up, writes Geoffrey Robertson QC
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

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

iJobs Job Widget
iJobs Money & Business

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...

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas