Financial results by Lloyds Banking (LLOY) and Royal Bank of Scotland (RBS) have this week revealed huge losses, even though the partially state-owned banks would argue they are making progress in reviving their businesses. The big question is whether these companies will be in good enough shape to convince the government to exit its investments before the next general election in 2015.


The point at which the government will look to reduce its stake in Lloyds is 61p, according to reports. Investec analysts Ian Gordon is not convinced: ‘This is a new “contrived” break-even number for UK government accounting which conveniently ignores its average in-price of 73.6p.’


Lloyds, which received £17 billion for a 40% stake from the government, shrank its losses for 2012 to £570 million from £3.5 billion in 2011. Lloyds also put aside a further £1.5 billion to cover its fines for mis-selling payment protection insurance, bringing its total allocation to some £6 billion. Its shares dived 6.8% to 50.75p on the news.


RBS chief executive Stephen Hester said yesterday, while announcing pre-tax losses of £5 billion, that his bank could be in the right position from 2014 for the government to sell down its stake.


‘On one level, Stephen is probably right,’ says Investec's Gordon. ‘Most, but not all, of the group’s stabilisation, and fundamental repositioning, should have been completed by the end of 2014. But in our view, the group’s financial outlook is incompatible with securing a UK government exit remotely close to its 505.3p entry level.’


RBS slipped 5% to 307.5p on the back of Lloyds' results. David Cameron’s hopes of dumping these banks ahead of his re-election campaign appear a little optimistic.

Issue Date: 01 Mar 2013