The Treasury, unexpectedly, turns a profit

Here’s an interesting note, buried deep in all the Budget reporting today – a report from UK Financial Investments, one of the world’s odder holding companies.

Shares in the two part-state-owned banks, RBS and Lloyds, closed at 44.49p and 64.2p respectively today, rising after the Budget failed to demonstrate we were ALL GOING TO DIE (etc). This is a substantial improvement on this time last year, though far from the highest they’ve been in the interim.

What it also means is that… well, the Treasury poured money into these banks like water in 2009 to stabilise them, taking share capital in return. They got an 84% stake in RBS – 90.6 billion shares – in return for £45.5 billion in funding, and a 41% stake in Lloyds – 27.6 billion shares – in return for £20.3 billion. The maths are simple – 45.5/90.6 = 50.22p per RBS share, 20.3/27.6 = 73.55p per Lloyds share.

But between them, these two banks – mostly Lloyds – have paid back just under £3.2 billion of that initial funding, in cash. If we subtract this from the total investment, we find the cost to the Treasury of those shares is… 49.89p per RBS share, 63.16p per Lloyds share.

Which means that UK Financial Instruments is currently sitting on a paper loss of around £5 billion in RBS shares, but a paper gain of around £280 million in Lloyds shares.

There’s clearly still a long way to go before it would be economically or politically viable to sell these shares, but it does look to be on the right track – it seems distinctly possible we’ll see the Treasury actually turning a profit on these over the next few years, even accounting for the cost of the borrowing to pay for it (at, what, 4%?).

(On a semi-unrelated note… I was quite unimpressed by the Conservative response to the Budget. All it seemed to involve was hammering on about how large the deficit was, without ever touching on… well, what else they’d have done. A missed opportunity to actually discuss economic policy, there.)

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