Now a new milestone has been reached: the government is no longer the biggest stakeholder in Lloyds Banking Group, after it cut its stake to less than six per cent yesterday.
A savings and lending bank, Lloyds Banking Group was always going to be an easier project to fix than RBS, a badly-led conglomerate with global reach that was embroiled in many aspects of the financial crisis. Subsequently, it has been forced to pay out billions in fines and compensation including those payments related to Libor and forex rate manipulation.
However, the biggest reckoning is yet to come: a bill from US authorities for its role in the subprime mis-selling scandal that lit the fuse of the financial crisis. This could end up being in the double digit billions. Yesterday, it was suggested that negotiations on the mega fine could come to a head as early as this week, although that remains unconfirmed.
Resolution of the matter would remove a major hurdle to returning RBS, still 72 per cent owned by the taxpayer, to the private sector by the state selling its shares.
With Lloyds, the government has prudently been selling into a recovery in bank shares since the election of Donald Trump. Yesterday’s stake sale simultaneously highlights the relatively weak position of RBS and puts it next in line for shares to be sold. Ministers shelved plans to sell more RBS shares in the summer when the share price fell too much in the wake of the referendum to make it worthwhile. That is no longer the case: since July the bank’s share price has risen 50 per cent to 227p.
Once the monster fine is out of the way, UK Financial Investments, which manages the government’s stake, should refocus on shedding its RBS shares. The future cannot be foretold and there may never be a better time to sell. It would be a mistake to try and fix the errors of the past by trying to play the market. The fact that the taxpayer will never fully recoup funds poured into RBS must be accepted so the bank, and the government, can move on.