We have certified the Treasury’s approach for calculating the net loss or gain to the taxpayer of the interventions to stabilise the financial system. In particular, these are:
- equity injections into Royal Bank of Scotland (RBS), Lloyds Banking Group (LBG) and Northern Rock plc;
- the Asset Protection Scheme (APS);
- bank funding support through the Special Liquidity Scheme (SLS) and Credit Guarantee Scheme (CGS);
- holdings in Bradford & Bingley (B&B) and Northern Rock Asset Management (NRAM); and
- other loans through the Financial Services Compensation Scheme (FSCS), various wholesale and depositor guarantees and a contingent capital facility (CCF).
The APS, SLS and CGS have now closed, with net gains to the Exchequer of £5.0 billion, £2.3 billion and £4.3 billion respectively. Fees relating to the RBS CCF, which was closed in December 2013, and to underwrite the RBS and LBG share purchases add a further £1.3 billion and £0.7 billion respectively. These figures have been captured in PSNB.
The Treasury paid £66 billion for shares in the two banks. The market value of the shares at the time of purchase was £53 billion, with the difference of £12.4 billion added to PSND. This treatment is expected to change once the conclusions of the PSF Review are implemented (see Annex B). This market value includes an estimate for the value of the Dividend Access Share (DAS) in RBS, which gives the Treasury enhanced dividends rights if RBS were to pay dividends on ordinary shares, as long as the share price remains below 650p. Changes in the market prices of the Government’s shareholdings in RBS and LBG are not reflected in PSNB and PSND until shares are sold. The Treasury sold £3.2 billion of LBG shares in September 2013, at a price above their implied value on the public sector balance sheet (but only fractionally more than it paid for them), reducing PSND by £0.6 billion. Excluding the DAS, the value of the shares sold, plus the latest volume-weighted average market prices for the remaining shares, imply a total loss of £15.6 billion on the equity shares, close to the implied loss of £15.3 billion reported in December, as LBG’s share price has risen, but RBS’ has fallen.
Following its review of RBS, the Treasury announced it is in advanced negotiations to simplify the bank’s capital structure by retiring the DAS. The DAS is valued at £1.5 billion in the Treasury’s latest accounts. This value is uncertain as the DAS is not traded.
The Treasury continue to assume that the other interventions, including holdings in B&B and NRAM, will not materially affect the aggregate loss or gain. Although the Exchequer is expected to recover its support for B&B and NRAM in cash terms, there may be a net present value cost once risk and the delay in proceeds are considered.
Overall, their approach implies an estimated direct loss to the taxpayer on the financial interventions of £0.6 billion, including the DAS and underwriting fees. If all interventions were financed through debt, the Treasury estimate that additional debt interest costs would have totalled £18.4 billion over the five and a half years to date.