Lloyds returns to the private sector, but have taxpayers been paid in full?

The plan had been for the Chancellor and the Lloyds bank boss Antonio Horta-Osorio to go on a walkabout at an apprenticeship training centre in Coventry. A mutual back-slapping moment to celebrate, almost a decade on, the return of the once beleaguered Lloyds into private ownership.

But the general election happened and purdah rules knocked that choreographed moment on the head. Perhaps not a bad thing. For while the government selling down its shares is of course to be welcomed, the maths on the supposed profits for the taxpayer are probably not all they seem.
On paper, Mr Horta-Osorio says that we’ve got all our £20.3 billion back and then some! Another £900-odd million on top of what we put in. But he fails to mention the interest payments on the debt the government had to borrow to bail out Lloyds out in the first place. You could argue that having rescued the bank from the brink, a decent return is what taxpayers – still mired in austerity – deserve. It’s certainly what Lloyds itself would expect when it lends to its own customers.

When I asked him about this today, Mr Horta-Osorio simply said there were “many possible ways” of looking at the outcome. “Taxpayers did not invest to get a return but to avoid a collapse of the bank,” he said.

So perhaps for Mr Hammond, some awkward questions dodged.
On the positive side, the Lloyds boss deserves plaudits for shrinking the bank, ridding it of billions of pounds worth of toxic assets, clearing its debts and turning its focus back to what high street banks do best. Lending money prudently to the consumers and small businesses in their own country. The use of the word prudent is everything. It was the reckless lending to corporates by HBOS which led to its near collapse at the height of the financial crisis. Gordon Brown was desperate to avoid that outcome and “persuaded” the then Lloyds chairman Victor Blank to “rescue” HBOS and absorb it into Lloyds – what was then one of the few banks that had escaped relatively unscathed from the credit crisis.

But taking on HBOS was to be Lloyds downfall. It led to the massive government bail out a year later and from that the bank is only just fully emerging today.

Lloyds isn’t completely sin-free. It’s had to pay out £17 billion in PPI claims, the biggest of all the high street banks. And it’s come in for some pretty harsh criticism over its handling of the fraud scandal within HBOS restructuring unit in Reading.

While it’s true that problem originated inside HBOS, Mr Horta-Osorio and his predecessors conducted numerous investigations into the unit in the wake of customer complaints but claimed not to have found anything. In the end it was left to a husband and wife team in music publishing from Cambridge to expose what turned out to be a multimillion pound fraud.

As for the Chancellor, he may breath a sigh of relief that one state-owned bank is finally off his hands. But the prospect of him shifting his other “asset”, the Royal Bank of Scotland, any time soon looks very bleak indeed.