BRUSSELS Gordon Brown insisted on Tuesday that the part-nationalised banks would end up reaping a profit for the taxpayer, on the day the Treasury committed another £36.7bn in net additional capital for Royal Bank of Scotland and Lloyds.
The new bail-out almost exactly matches the £37bn Mr Brown put into the British banks in October 2008, in a recapitalisation that was widely copied round the world.
At that time the banking system was on a precipice. This time Mr Brown and Alistair Darling, the chancellor, believe the latest capital injection into the banks is part of what they hope will be a profitable exit strategy.
“At the end of the day, banks will be paying money to the British public, not the other way round,” Mr Brown said.
In a Commons statement, Mr Darling argued that the final deal over the future of Lloyds and RBS was far better than the one agreed in principle in the spring, which envisaged the Treasury insuring £585bn in toxic assets in the two banks.
In the end Lloyds escaped the insurance scheme altogether, thanks to an agreement by the private sector to take on many of the risks associated with those assets.
“This will significantly reduce the cost and the exposure to the taxpayer,” Mr Darling said. “Lloyds will begins its transition from state support to private finance.”
Mr Darling is putting £5.9bn of extra capital into Lloyds as part of a rights issue – £3.2bn once fees and charges to the bank are knocked off – maintaining the government’s 43 per cent stake.
Meanwhile RBS will now insure a total of £282bn, and increase from £42bn to £60bn the first losses it will incur.
Although Mr Darling insisted this represented a transfer of risk from taxpayers to the bank, the Tories pointed out that it was hardly a breakthrough.
Mr Darling was forced on Tuesday to put up an £8bn emergency equity fund in case the bank runs into trouble again. And if the bank does have to pick up more of the bill for heavy losses, it is the taxpayer – as 70 per cent owner – who will pay the lion’s share.
Nevertheless, Mr Darling hopes the new money for RBS will put the bank on track back to profit.
The Tories did not oppose the new capital injections, but George Osborne, the shadow chancellor, said Mr Darling had little choice and that there was still no guarantee the move would lead to increased lending.
Mr Osborne also claimed that Mr Darling had initially resisted breaking up the state-owned banks but had been forced to do so by Neelie Kroes, the European Union’s state aid commissioner. The chancellor denied the claim.
In terms of public finance, the government will have to sell about £13bn more in gilts this year to cover its portion of new share capital in Lloyds and the higher-than-expected capital injection into RBS.
If all the interventions in the system are added up, Treasury figures show the potential taxpayer liability stands at about £900bn.
The vast majority of this is extremely unlikely to be called, as it is backed by banking and financial assets. The figure was reduced on Tuesday from close to £1,150bn, after Lloyds decided not to participate in the asset protection scheme and RBS agreed to take on more risk.
In the 2009 Budget, the Treasury estimated that the likely ultimate taxpayer loss was between £20bn and £50bn. That could be revised lower in the pre-Budget report. But future corporation tax receipts will also be revised lower in the PBR after the Treasury released RBS from its undertaking to forgo claiming tax losses for five years, a £10bn concession.
