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Senior figures doubt Osborne claim that taxpayers will profit from bank bailouts Senior figures doubt Osborne claim that taxpayers will profit from bank bailouts
(about 4 hours later)
George Osborne is facing questions about his claim that the taxpayer would make a £14bn profit from its bailout of the banking system seven years ago.George Osborne is facing questions about his claim that the taxpayer would make a £14bn profit from its bailout of the banking system seven years ago.
Andrew Tyrie, incoming chairman of the Treasury select committee, said on Thursday the figure required a “great deal of qualification”. Andrew Tyrie, the incoming chairman of the Treasury select committee, said on Thursday the figure required a “great deal of qualification”.
The chancellor had told senior bankers at the Mansion House on Wednesday that bankers at Rothschild had calculated the profit figure as part of his announcement that he was ready to sell off the taxpayer’s stake in Royal Bank of Scotland, even though the shares are trading at a £13bn loss. The chancellor told senior bankers at the Mansion House on Wednesday that bankers at Rothschild had calculated the profit figure as part of his announcement that he was ready to sell off the taxpayer’s stake in Royal Bank of Scotland, even though the shares are trading at a £13bn loss.
Rothschild included fees paid by the bank to the Treasury as well as proceeds from the bailout of Lloyds Banking Group, Northern Rock and the mortgage book of Bradford & Bingley to produce the £14bn profit.Rothschild included fees paid by the bank to the Treasury as well as proceeds from the bailout of Lloyds Banking Group, Northern Rock and the mortgage book of Bradford & Bingley to produce the £14bn profit.
But Tyrie said: “The Rothschild review puts the net gain to the taxpayer from the bank bailouts at £14bn. This would benefit from a great deal of qualification. It excludes the cost of funding the bailouts. The Office for Budget Responsibility put this at £17bn. And it treats fees paid in exchange for a service as if they were income, or recoveries.”But Tyrie said: “The Rothschild review puts the net gain to the taxpayer from the bank bailouts at £14bn. This would benefit from a great deal of qualification. It excludes the cost of funding the bailouts. The Office for Budget Responsibility put this at £17bn. And it treats fees paid in exchange for a service as if they were income, or recoveries.”
Shares in the 79% taxpayer-owned bank rose 2% on Thursday as investors had their first chance to react to the Mansion House announcement. The average price at which the taxpayer bought its stake in the bank was 502p, and after Thursday’s rise the shares remained well below this level at 362p.Shares in the 79% taxpayer-owned bank rose 2% on Thursday as investors had their first chance to react to the Mansion House announcement. The average price at which the taxpayer bought its stake in the bank was 502p, and after Thursday’s rise the shares remained well below this level at 362p.
Osborne was also facing questions from unions, Labour and analysts about the timing of the selloff after the shares rose. Rob McGregor, Unite’s national officer for finance, said: “Like Royal Mail and British Gas before it, the Tories are ripping off the public by selling our stake in RBS at a knock-down rate to city investors.” Osborne was also facing questions from unions, Labour and analysts about the timing of the selloff after the shares rose. Rob MacGregor, Unite’s national officer for finance, said: “Like Royal Mail and British Gas before it, the Tories are ripping off the public by selling our stake in RBS at a knock-down rate to city investors.”
“Taxpayers who bailed out RBS during the global financial crisis want their money back and will rightly be suspicious of any rush to sell,” Labour’s Chris Leslie said. The shadow chancellor, Chris Leslie, said: “Taxpayers who bailed out RBS during the global financial crisis want their money back and will rightly be suspicious of any rush to sell.”
Ian Gordon, an analyst at Investec, said: “We think that the timing of last night’s announcement was arguably somewhat premature, dictated more by politics rather than, necessarily, an exercise in optimising market timing.”Ian Gordon, an analyst at Investec, said: “We think that the timing of last night’s announcement was arguably somewhat premature, dictated more by politics rather than, necessarily, an exercise in optimising market timing.”
However, Gordon said the shares could be supported in the coming 12 months as the RBS generates capital and begins to return to profit after seven years of losses. However, Gordon said the shares could be supported in the coming 12 months as RBS generates capital and begins to return to profit after seven years of losses.
Osborne hopes the proposed selldown of the government stake would make the shares more attractive to City investors, who may have been deterred by fears of political meddling. He also tried to counter concern that any selloff could not take place before the bank settled a mutibillion pound lawsuit in the US over the way bonds were sold before the crisis. Osborne hopes the proposed selldown of the government stake would make the shares more attractive to City investors, who may have been deterred by fears of political meddling. He also tried to counter concern that any selloff could not take place before the bank settled a mutibillion-pound lawsuit in the US over the way bonds were sold before the crisis.
The analysis by Rothschild concludes that this penalty – possibly as much as £2bn – is already reflected in the share price.The analysis by Rothschild concludes that this penalty – possibly as much as £2bn – is already reflected in the share price.
The chancellor had faced calls from bankers to review taxation of the sector before his speech. He did not launch such a review but said: “I want Britain to be the best place for European and global bank HQs.” His comments came as HSBC reviews whether to remain headquarted in the UK. The chancellor had faced calls from bankers to review taxation of the sector before his speech. He did not launch such a review but said: “I want Britain to be the best place for European and global bank HQs.” His comments came as HSBC reviews whether to remain headquartered in the UK.