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The UK bank crisis has cost at least £5 billion … so far

I just got a press release from HM Treasury which makes for interesting reading:

The National Audit Office has today given an update on the financial support provided by the Treasury to the UK banking sector – how much support has been provided, how much is still outstanding and how much it is costing the taxpayer.

Since 2007, the Treasury has made a series of large financial interventions to support the financial stability of UK banking. These interventions supported three broad aims: to protect depositors; to maintain liquidity and capital for UK banks through the period of market closures; and to encourage banks to lend to creditworthy borrowers.

To remove the support, the guarantees will be withdrawn, the loans repaid and, eventually, the shares returned to private ownership. As at March 2012, the total outstanding support stood at £228 billion (down from the total a year before of £456 billion and a peak of £1.2 trillion). Of the £228 billion, £109 billion constitutes outstanding guarantee commitments and £119 billion was provided as cash.

In return for providing the support, the Treasury has charged fees and interest of £14 billion to 31 March 2012. Most of the income has been from fees charged on the financial guarantee schemes and has included large one-off payments such as the fee paid by Lloyd’s for the Asset Protection Scheme. Unless the shares in RBS and Lloyd’s Banking Group start paying substantial dividends, the Government as a whole will start to make annual cash losses on the support once the cost of borrowing the money used to purchase the shares and provide the loans is taken into account.

Today’s report, which is published as part of HM Treasury’s departmental financial statements,  notes that the income provided by fees and interest is less than would be expected from a normal market investment and has not compensated the taxpayer for the degree of risk accepted by taxpayers in providing the support. Once the opportunity cost and risks are factored in, the schemes have represented a transfer of at least £5 billion from taxpayers to the financial sector. This can be regarded as part of the cost of preserving financial stability in the crisis and, as the NAO reported in 2009, had the support not been provided, the potential costs would have been difficult to envision.

The Treasury has invested £66 billion in shares in RBS and Lloyds to provide the banks with sufficient capital. The shares are held in the accounts at their market value, which has fallen by more than £18 billion over the year, and by more than £32 billion since the government's original investment. Although the Government remains committed to returning the banks to private ownership, UK Financial Investments Ltd has warned that, until economic and regulatory uncertainties subside, it will be difficult to deliver value for money from a sale of the shares.

The three key lines for me are:

As at March 2012, the total outstanding support stood at £228 billion (down from the total a year before of £456 billion and a peak of £1.2 trillion).

In other words, the banks have repaid 75 percent of the investment made by the government since 2008.

The schemes have represented a transfer of at least £5 billion from taxpayers to the financial sector.

That’s about £175 for every adult in Britain.

The Treasury has invested £66 billion in shares in RBS and Lloyds, which has fallen more than £32 billion since the government's original investment.

We will get it back … it’s just going to take a lot longer than they thought.

 

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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