Q What’s at stake?
A The Treasury has owned 79 per cent of RBS since 2008 – and it wants out. But shares are lower than the price paid. It will lose money selling shares.
Q Lose money?
A Yes but the chancellor and Rothschild say that overall the government will make money by selling shares in Lloyds and offloading bad bank loans. So it can afford to take a hit on RBS.
Q How much does the government expect to make?
A It expects £5.3bn from Lloyds and £9.6bn from further sales from UK Asset Resolution (the remnants of Northern Rock and Bradford & Bingley). Throw in £4.3bn and £2.3bn from fees earned on two bank bailout schemes between 2008 and 2012 (the Credit Guarantee Scheme and Special Liquidity Scheme) – plus a £7.2bn loss on RBS – and Rothschild expects the Treasury to reap £14.3bn net profit from the 2008 bailout programme.
Q So what’s the problem?
A The estimates ignore how much it cost the government to fund the interventions made in 2008.
Q Can you explain what that means?
A Taxpayers injected £107.6bn into the financial sector overall in 2008. But the £107.6bn had to come from somewhere – and it came from the Treasury issuing debt to raise the cash.
Q And the government has to pay interest on the debt?
A Correct. The Office for Budget Responsibility estimates the Treasury had to pay £17bn in interest to investors overall for borrowing the £107.6bn to fund the bailout – more than the £14.3bn estimated profit.