Britain scraps plans to sell stakes in RBS and Lloyds banks

The market upheaval triggered by the Brexit vote has forced the government to shelve plans to sell its stock in RBS and Lloyds.
The market upheaval triggered by the Brexit vote has forced the government to shelve plans to sell its stock in RBS and Lloyds.PHOTOS: AGENCE FRANCE-PRESSE, REUTERS
The market upheaval triggered by the Brexit vote has forced the government to shelve plans to sell its stock in RBS and Lloyds.
The market upheaval triggered by the Brexit vote has forced the government to shelve plans to sell its stock in RBS and Lloyds.PHOTOS: AGENCE FRANCE-PRESSE, REUTERS

LONDON • Britain's government has scrapped plans to sell stakes in Royal Bank of Scotland (RBS) and Lloyds Banking Group this year in the wake of the Brexit vote, sources said, a decision set to leave a multibillion-pound hole in the country's public finances.

The Treasury had planned to further reduce its exposure to the banks it took over during the global financial crisis by raising £9 billion (S$16.2 billion) via sales of stock to fund managers and a discounted offer to the public.

However, the market upheaval and economic uncertainty triggered by Britons' vote last Thursday to leave the European Union (EU) has forced policymakers to shelve disposal plans until next year at the earliest, sources close to the Treasury told Reuters.

The finance ministry is bracing itself for a prolonged period of market volatility which it said would make it hard to judge if any sale would achieve value for taxpayers, according to the sources. "It is going to take quite a while for us to understand the implications for the banks before we could even consider starting to sell," one of the sources said.

While decisions to put financial asset sales on ice will be seen as pragmatic by many, the delays have serious consequences for government coffers.

The political and economic uncertainty also risks delaying government plans to sell a portfolio of US$15.7 billion (S$21.3 billion) of loans held by Bradford & Bingley, a mortgage bank also nationalised during the financial crisis, one of the sources said. Many of those loans were buy-to-let mortgages.

For each month the government holds on to the stakes, taxpayers must shell out about £200 million in additional interest on the debt used to buy the holdings at the height of the financial crisis in 2008, according to data from the Office for Budget Responsibility.

UK Financial Investments, which manages the government's stakes in the banks, and the Treasury declined to comment. Lloyds said the timing of any share sale was a matter for the government, and RBS declined to comment.

The Treasury currently owns 73 per cent of RBS and 9 per cent of Lloyds. Shares in both banks have fallen over the past two trading days by the most since the financial crisis as Britain's vote to leave the EU sent shock waves through financial markets.

The British government has so far managed to recoup just over half of the £133 billion it spent rescuing the banks.

A six-month programme to drip- feed Lloyds' shares into the market is due to expire tomorrow and there are currently no immediate plans to extend it, the sources said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 29, 2016, with the headline 'Britain scraps plans to sell stakes in RBS and Lloyds banks'. Print Edition | Subscribe