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PAC highly critical of Treasury over bailout of Lloyds & RBS

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The Public Accounts Committee (PAC) has warned that the £66 billion paid by taxpayers to bailout Lloyds Banking Group and the Royal Bank of Scotland (RBS) at the height of the financial crisis may never be recovered. In a report published today looking at the Treasury’s handling of the Northern Rock crisis, the PAC, chaired by Margaret Hodge MP, said: "The Treasury was unable to respond promptly when the banking crisis hit because it lacked the right skills and understanding.” She said that overall the rescue of Northern Rock is likely to cost taxpayers £2 billion and that the sale of Northern Rock to Virgin Money had been “fortunate.”

 

Ms Hodge does not expect the same thing to happen to Lloyds Banking Group or RBS and warned that it could take years for them to be sold. The UK taxpayer currently owns 40 per cent of Lloyds and 82 per cent of RBS. Since the part-nationalisation of these banks, there share price has plummeted meaning that if they were sold now at their current market value, the government and the UK taxpayer would lose billions of pounds. The share price of RBS has improved over the past 12 months, up from a low in January of 175 pence per share, up to 280 now. Meanwhile, Lloyds share price has doubled during the past 12 months from a low of 22.5 pence per share up to today’s figure of 45p.

 

However, in order to get the taxpayers stake back, the government would have to sell RBS shares at around 500 pence per share and although Lloyds share price has enjoyed a similar rise this year, the shares would have to rise by about 40 per cent from their present level. The PAC report suggests that there is a risk that the £66 billion used to bailout the two banks may never be recovered. In a scathing attack on the Treasury and UK Financial Investments (UKFI), the body that took over the taxpayer interests in RBS and Lloyds, the report said after nationalization the Treasury “failed to effectively challenge the optimistic business plan put forward by the bank's management to split the bank.”

 

More: http://www.myfinances.co.uk/investments/2012/11/16/pac-highly-critical-of-treasury-over-bailout-of-lloyds-rbs


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