The Business Secretary, Lord Mandelson, insisted yesterday that full nationalisation of Lloyds and RBS was not "inevitable" as the backlash grew over the cost of Lloyds' takeover of HBOS.
The Business Secretary, Lord Mandelson, insisted yesterday that full nationalisation of Lloyds and RBS was not "inevitable" as the backlash grew over the cost of Lloyds' takeover of HBOS.
As the government took a controlling stake in Lloyds Banking Group, chairman Sir Victor Blank and chief executive Eric Daniels were under pressure from shareholders angered by the latest multi-billion-pound rescue deal, which raised the government's stake from 43% to at least 65%.
But Lord Mandelson said he believed that in the "longer term" taxpayers would get "quite a lot in return" for their investment.
"I am pretty confident of that, and I actually do not agree that the taxpayer should be asked to put anything into these businesses without knowing that eventually the taxpayer is going to get something back," he said.
He added: "At the moment, what the government is able to do is to exercise a great deal of influence over the restructuring, change and reform of the banks and their direction, without taking the final step of removing the shareholders."
Roger Lawson, chairman of the UK Shareholders' Association (UKSA), which represents private investors, said Lloyds shareholders were left paying the price for a "disastrous" move to buy HBOS.
"The general view of Lloyds investors is that Sir Victor Blank and the rest of the board should go," he said.
"Ever since Sir Victor and Eric Daniels decided to take over HBOS, it has been a disaster. Clearly it was a mistake, and shareholders no longer own the company - the government does."
UKSA said it would meet today to decide what action could be taken and are hoping investors will be able to have their say when the latest Lloyds state rescue package comes up for shareholder vote.
The government yesterday announced it had agreed to underwrite £260 billion of Lloyds' "toxic" assets in a deal which followed weeks of wrangling. Lloyds chiefs have also agreed to provide £28bn of extra mortgage and business lending over the next two years to help drag the UK out of recession.
The government already owns a near 70% stake in rival group Royal Bank of Scotland after a similar rescue package finalised earlier this year.
The Lloyds bail-out will see the Treasury buy billions of pounds worth of non-voting shares in Lloyds that could be upgraded at a future stage, potentially taking the government's active interest to 75%.
This will substantially dilute investor shareholdings in the group, which has infuriated investors. One private shareholder in Lloyds said: "This seems to be a case of the government sidelining investor interests so they can improve lending in the public domain.
"The government has effectively pressured the company into doing something which is in the public interest, but not in the interest of shareholders."
Lloyds had to turn to the government for help following its takeover of HBOS, which last month reported annual losses of nearly £11bn.
Ministers are thought to have forced through a far tougher package than wanted by the Lloyds board, which had fought to avoid the bank becoming majority public-owned. The deal was also said to be harsher than that applied to bailing out RBS.
But Lloyds today stood by its decision to take part in the Asset Protection Scheme and said it was fully behind its management team. Barclays is reportedly next in line to tap the government's "toxic asset" scheme and is said to have begun negotiations about the taxpayer underwriting up to £150bn of its bad credit assets.
