OVER the last year UK taxpayers, whether they realise it or not, have become major investors in British banks with stakes worth tens of billions of pounds.
OVER the last year UK taxpayers, whether they realise it or not, have become major investors in British banks with stakes worth tens of billions of pounds.
The process started with the nationalisation of Northern Rock, Britain's fifth-largest mortgage lender, in February 2008 after the money market funding that sustained its rapid growth dried up.
Investors are seeking compensation of around £1.8bn but the government seems intent on paying little more than 1% of this. It is planned that the company will eventually return to private ownership. The state next intervened in September by taking Bradford & Bingley's mortgage business into public ownership. Its 200 branches and £20bn of deposits were sold to Spain's largest bank, Banco Santander, which owns Abbey and Alliance & Leicester.
Again, shareholders have not yet been compensated and the mortgage business, which had been the UK's eighth-biggest lender, will not be returned to the private sector.
A month later the government bashed a few heads together and oversaw a capital raising by UK banks that it hopes will get them through the recession.
As a result of its status as underwriter, picking up the shares that others did not want, in November the government became the owner of a 57.9% stake in Royal Bank of Scotland. It is currently nursing a £2.4bn paper loss on the £15bn investment. It also bought £5bn of preference shares.
Investors were equally uninterested in capital issues by Lloyds TSB and HBOS, which are to merge following court approval yesterday. The share issues concluded this week, leaving the state paying £8.4bn at 113.6p a share for a 57.9% stake in HBOS and picking up 30% of Lloyds TSB that cost it £4.5bn at 173.3p a share.
At current market prices, the stakes are worth £3bn less than the government paid for them.
When the companies merge this week into Lloyds Banking Group the state will have a 43.3% stake in the new company.
It has also bought £4bn of preference shares in the two banks.
An arms-length company, UK Financial Investments (UKFI), has been established to manage the government's banking holdings and eventually sell them at a profit. It took on oversight of the Royal Bank stake on December 1 and will gain control of the Lloyds TSB and HBOS holding later this week.
It will have a say over the composition of the company boards. Eventually UKFI will also oversee Northern Rock and the government's portion of Bradford & Bingley.
The government yesterday confirmed the appointment of Glen Moreno, chairman of publisher Pearson, Peter Biggs, a former chief investment officer for Merrill Lynch Asset Management, Michael Kirkwood, previously Citi's chief country officer for the UK, and Lucinda Riches, former head of equity capital markets at UBS, as non-executive directors of the company. Another two will be appointed in the next month.
The organisation is led by Philip Hampton, former chairman of supermarket J Sainsbury. Tom Kingman, a Treasury official, is its chief executive.
