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Lloyds And RBS
Tuesday 27th April, 2010 01:32 Comments: 0
David Cameron always opposed state ownership of these banks, calling it a "disaster for the British taxpayer, a disaster for this Government and a disaster for our country".

But the taxpayer is currently sitting on a profit of close to £10bn on its stakes in Royal Bank of Scotland and Lloyds Banking Group after a surprise surge in their share prices.

The shares in both banks have risen sharply in recent days and outperformed the wider market amid signs that the banking crisis is coming to an end and that their bad debts have peaked.

Alistair Darling tonight claimed his bailout of the banking sector had been justified after analysis by the Guardian showed a sizeable paper profit had opened up – once recently disclosed fees paid to the government are taken into account.

RBS shares have jumped 75% in little more than two months and a £26bn combined loss on both stakes at the end of last year has now been reversed to a profit of £9.4bn. The Guardian has calculated that the profit on the 84% stake in RBS tonight stood at £7.4bn while the taxpayer's 41% share in Lloyds was worth almost £2bn more than the Treasury paid for it.

Vince Cable wisely suggests that the Government shouldn't sell the shares for years (although it doesn't sound like Labour ever planned to sell them early), but Ian Gordon, banks analyst at Exane BNP Paribas suggests "It may prove increasingly attractive for the new UK government to take advantage of the current frothy price to try to claw back part of its £45.8bn investment [in RBS] without loss,".

Given that the Conservatives are keen to reduce the deficit (although George Osborne refuses to provide any kind of specific figure for "bulk" and doesn't appear to be capable of determining for himself how much to cut as he's merely repeating the advice of Mervyn King), this might be one way for them to quickly get some money back without having to increase VAT to 20% (or more) or going back on their reversal of Labour's planned increase in National Insurance.

This news also reinforces my belief that Darling has a pretty good grasp of the economy (despite the rather scary figure of £1.4 trillion of national debt, which I'd prefer we didn't have hanging over our heads); although you could perhaps argue that the banks had to be nationalised when no one else stepped in and it's possibly luck that has resulted in these profits.
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