The £66bn of taxpayer funds used to buy shares in Royal Bank of Scotland and Lloyds Banking Group at the height of the financial crisis may never be recovered, a powerful group of MPs warned on Friday.
As the public accounts committee criticised the way the Treasury handled the nationalisation of Northern Rock, it also called on the government to ensure taxpayers got value for money from the future sale of stakes in the bailed out banks.
The committee urged the government to keep its role as shareholder separate from "wider policy objectives" amid calls from some politicians for RBS to be turned into a small business lending bank.
Stakes in bailed out banks are managed at arm's length by UK Financial Investments.
The committee wants UKFI to publish updates on the costs associated with Northern Rock. The bank was split into Northern Rock plc, which resumed lending and was sold to Virgin Money at the start of this year, and Northern Rock Asset Management, the "bad bank", which remains in public hands.
The committee had been investigating the National Audit Office report published in May which warned that taxpayers faced losses of at least £2bn on the continued ownership of the so-called bad bank.
With only two bidders for Northern Rock and only one that was really keen to buy – Virgin Money – the committee said this did not bode well for any attempts to sell off RBS, of which taxpayers own just over 80%, and Lloyds, in which taxpayers own just under 40%.
At current share prices taxpayers are losing around half of the £66bn investment. "The lack of competition does not fill us with confidence that the taxpayer will make a profit on the sale of the two banks which remain in public ownership, RBS and Lloyds.
There is a risk that the £66bn invested in RBS and Lloyds may never be recovered. It is vital that the final decisions on the wholly owned banks are made with value to the taxpayer taking precedence over speed of exit," said Margaret Hodge, the MP who chairs the committee.
The report said: "We are not convinced that the taxpayer would be making a profit on these banks any time soon."
The NAO reported that the sale of Northern Rock was handled well by UK Financial Investments – which looks after the taxpayer stakes in the bailed out banks – but still lost the taxpayer an estimated £469m.
"There was little competition to buy Northern Rock. UKFI was fortunate that Virgin Money had a strategic interest in immediately purchasing a small retail banking operation in 2011."
Hodge noted that when Northern Rock was split in 2009 and the "good bank" given a mandate to start lending it failed to achieve its goal.
"Splitting the bank was supposed to generate lending, but the new bank lent only £9.1bn against a target of £15bn," Hodge said.
The committee concluded the Treasury was "part of a monumental collective failure to understand that the pre-crisis boom could lead to a banking crisis".
Treasury officials have admitted Northern Rock should have been nationalised more quickly rather than in February 2008, five months after the run on the lender which sparked anxiety across the financial sector and the first run on a bank since the 1866 run on Overend & Gurney.
Hodge called on the Treasury to update the committee on its review into dealing with financial crisis – known as the White review – after finding that it "did not have sufficient capacity or the skills to understand and respond to the crisis when it began".
She said: "This will not be the last banking crisis, and the next one is likely to be different. The Treasury must ensure it retains the right staff with the right skills to understand the risks and respond effectively."
guardian.co.uk
As the public accounts committee criticised the way the Treasury handled the nationalisation of Northern Rock, it also called on the government to ensure taxpayers got value for money from the future sale of stakes in the bailed out banks.
The committee urged the government to keep its role as shareholder separate from "wider policy objectives" amid calls from some politicians for RBS to be turned into a small business lending bank.
Stakes in bailed out banks are managed at arm's length by UK Financial Investments.
The committee wants UKFI to publish updates on the costs associated with Northern Rock. The bank was split into Northern Rock plc, which resumed lending and was sold to Virgin Money at the start of this year, and Northern Rock Asset Management, the "bad bank", which remains in public hands.
The committee had been investigating the National Audit Office report published in May which warned that taxpayers faced losses of at least £2bn on the continued ownership of the so-called bad bank.
With only two bidders for Northern Rock and only one that was really keen to buy – Virgin Money – the committee said this did not bode well for any attempts to sell off RBS, of which taxpayers own just over 80%, and Lloyds, in which taxpayers own just under 40%.
At current share prices taxpayers are losing around half of the £66bn investment. "The lack of competition does not fill us with confidence that the taxpayer will make a profit on the sale of the two banks which remain in public ownership, RBS and Lloyds.
There is a risk that the £66bn invested in RBS and Lloyds may never be recovered. It is vital that the final decisions on the wholly owned banks are made with value to the taxpayer taking precedence over speed of exit," said Margaret Hodge, the MP who chairs the committee.
The report said: "We are not convinced that the taxpayer would be making a profit on these banks any time soon."
The NAO reported that the sale of Northern Rock was handled well by UK Financial Investments – which looks after the taxpayer stakes in the bailed out banks – but still lost the taxpayer an estimated £469m.
"There was little competition to buy Northern Rock. UKFI was fortunate that Virgin Money had a strategic interest in immediately purchasing a small retail banking operation in 2011."
Hodge noted that when Northern Rock was split in 2009 and the "good bank" given a mandate to start lending it failed to achieve its goal.
"Splitting the bank was supposed to generate lending, but the new bank lent only £9.1bn against a target of £15bn," Hodge said.
The committee concluded the Treasury was "part of a monumental collective failure to understand that the pre-crisis boom could lead to a banking crisis".
Treasury officials have admitted Northern Rock should have been nationalised more quickly rather than in February 2008, five months after the run on the lender which sparked anxiety across the financial sector and the first run on a bank since the 1866 run on Overend & Gurney.
Hodge called on the Treasury to update the committee on its review into dealing with financial crisis – known as the White review – after finding that it "did not have sufficient capacity or the skills to understand and respond to the crisis when it began".
She said: "This will not be the last banking crisis, and the next one is likely to be different. The Treasury must ensure it retains the right staff with the right skills to understand the risks and respond effectively."
guardian.co.uk
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