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UK banking bail-out heads back to black

The government is set to reap nearly £30bn from its emergency bailout of UK banks – a sum that would fund the country’s primary schools for a year – reveals The Banker in its September issue.

The return to profitability will represent a significant improvement on the estimated losses of £850bn, made at the height of the crisis, as the government propped up struggling institutions. The turnaround is down to a combination of recovering banking profits, rises in share prices and profits on fees charged for loans and guarantees.

UK taxpayers are currently breaking even on their 83.2% shareholding in Royal Bank of Scotland (RBS) and 41.3% shareholding in Lloyds TSB when dividends and other earnings are taken into account.

If the equity market rises in step with economic growth, the taxpayer is likely to see a profit of £19bn within 5 years*. At least another £8bn will be due from fees for loans, bond guarantees and the Asset Protection Scheme (APS).

Lloyds paid £2.5bn in fees to join the APS, even though it did not ultimately participate. Losses at RBS are unlikely to be large enough to require taxpayer money but the bank has so far paid £1.4bn to the government for the cost of the guarantee.

The Banker’s editor Brian Caplen says: “While the banks remain at fault for decisions that led to some of them needing a rescue package, the UK taxpayer could make a significant profit from bailing out the banks by 2015.”

Breakdown of bail-out earnings:

Equity Gains in share prices (over five years): £19bn

Debt Fees for guaranteeing bank bonds: £2bn

Asset protection scheme Fees (estimate): £5bn

Loans Fees: £1bn

Total to treasury: £27bn

* Estimate by the Centre for Economics and Business Research

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For further information, please contact:

Kristina Eriksson, Financial Times
+44 20 7873 4961

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