Nothing up his sleeve?

Is George Osborne planning a pre-election give-away funded by the sale of shares in Lloyds and Royal Bank of Scotland?

 hand of cards


Just looking at the 53p share price of Lloyds on Friday compared to the nearly 74p average price the Government paid when it bailed out the bank with £20 billion after the disastrous HBOS takeover, an imminent sale looks unlikely. The Chancellor would have to swallow a multi-billion pound loss and would be open to charges that he was doing it to buy votes.

But as the FT revealed, some fancy accounting footwork may be in progress. The shares are carried in the Government books at 61p each – the market price at the time, rather than the higher price that was actually paid.

In a private company the auditors would insist that the difference in these two prices – equal to well over £5 billion – was written off as goodwill at the time of the acquisition. But Government accounting is a law unto itself. A write-down of sorts was done in 2010 by a ‘capital transfer’ of £3.5 billion to the national debt, a tacit admission I suppose that the taxpayer would be unlikely to recover all of the money.

But for the public purse to be fully reimbursed the average sale price would have to be north of 74p, a tall order given the slow progress Lloyds has made in extricating itself from the HBOS mire and various mis-selling scandals. The price actually fell last week on news of Lloyds latest £500 million loss. But reduce the price to 61p or even lower and a sale before 2015 is more likely.

The Lloyds’ chairman certainly thinks that it could be possible “within the next two years.”

There is a way the Government could reduce the price even further and so make it even easier to claim a “profit.” Although Lloyds has not paid any dividends the Treasury has already received some cash back – the equivalent of 11p in the premiums for insuring the gigantic toxic debt Lloyds acquired with HBOS. The cost was high, but Lloyds has no choice but to pay it. Without that underwriting reassuring the international money market it would have been unable to fund its balance sheet.

The payments it made were to compensate the taxpayer for taking on even more risk from the banking collapse and should not be included in the share price calculation. But by deducting that sum Osborne could claim that a sale at anything over 50p was a gain for the taxpayer. As sleight of hand tricks go, Paul Daniels couldn’t do better.


close up of ace card


The Government has said nothing about any this. We learnt of the lower price from, of all things, the bonus agreement for Lloyds’ chief executive, who is set to receive £1.5 million if the Government is able to sell a third of its holding at anything over 61p a share.

A sale of Lloyds shares isn’t the only windfall Osborne can hope for. There is also Royal Bank of Scotland, where the bail out figures were even higher. The Government paid an average 500p for its shares, but they are carried in the books at 410p. More scope there for some clever accounting.