The UK government has finally sold its remaining stake in Lloyds Banking Group. The move marks something of a milestone for this particular relationship, and perhaps the end of what has been a rather chastening experience for all parties.
A profit of nearly £900m was made on the bailout stake, including dividends, which is a pleasant surprise given the uncertainty that reigned when the sum was deployed.
However, amortise that over the period ‘invested’ and put into perspective that the bailout sum was greater than £20bn, then in reality it’s a rather paltry return.
But given the reasoning behind the stake, a profit is a profit and it could have been a whole lot worse.
With the weight of the government stake off its back, Lloyds is unshackled and free to move forward and leave much of the past behind.
A healthy dividend yield underpinned by improving fundamentals and a robust capital ratio sees the bank well placed to prosper once again in a post-Brexit era.
In spite of the arguably happy ending to this particular bailout, the government does still have a very material 71 per cent stake in Royal Bank of Scotland.
It feels inevitable that this will result in a very grown-up loss for the taxpayer, unless there is a meaningful change in fortune. Some £45bn was injected into RBS at an average price of 502p.
The shares, as I write, trade at 259p in the market. Sadly, the £900m profit on Lloyds will do little to offset the losses to be realised on this particular stake.
A £1bn loss has already been crystallised in 2015 when George Osborne sold a 5 per cent stake at 330p.
Of course, a paper loss of several billion pounds may be worth it, given the grave consequences of not taking such decisive action.
Throwing good money after bad was, on balance, the right thing to have done in this situation. So right, in fact, that most other major economies followed the model set out by then prime minister Gordon Brown and chancellor Alistair Darling.
The UK banking system today at least appears to be in a position of relative stability, and many of the subplots of the past 10 years are either priced in or, one hopes, assigned to the history books.
We have relatively modest exposure to the sector at Coram, with a focus on small-cap financials that don’t carry the baggage of the 2008-09 financial crisis.
But perhaps now is the time to revisit the ‘big banks’ in the knowledge that if the UK is to prosper in a new era, then the banks will have to play a very meaningful part in that.
In 2009 David Cameron stated, “we’re all in this together”. That phrase feels as pertinent today as it did then.
James Sullivan is investment director at Coram Asset Management
