Bailing out struggling banks could turn out to be a nice little earner.
Despite protests from those who thought bailing out the banks was throwing away taxpayers' money, it's looking increasingly likely that the government's stake in Lloyds Banking Group (LSE: LLOY) will make a profit, with speculation building that there might be a bit of a sell-off in the coming months.
According to the latest report from UK Financial Investment (UKFI), the body responsible looking after our banking bailout investments, we're already pretty much at the break-even point with Lloyds.
Going on share prices alone, the average price paid for our 41% stake in Lloyds was 73.6p per share, and with today's price being down around 64p, we're currently sitting on a sizeable loss on the actual value of the shares -- around £2.5bn in total.
The whole deal
However, the bailout deal consisted of more than just the government buying shares with taxpayers' cash -- it also involved the Treasury offering capital support for Lloyds in the early days of the crisis, for which Lloyds coughed up £2.5bn in shares. That, together with fees paid by the bank, effectively brings the average price paid by the government for Lloyds shares to 63.2p, putting us just in the money.
Overall, we're still not out of the woods with Royal Bank Of Scotland (LSE: RBS) yet, as the average price paid, accounted for in similar terms, is 49.9p, which is still a bit above today's price of around 44.5p, but it may be only a matter of time before that comes good too.
Trick or treat?
Is this just a fancy accounting trick, at budget time and just before an election, to put some shine on the banking bailout, or is it a valid way of looking at the numbers? Whatever your take, it does at least emphasise that the bailout wasn't just a case of taxpayers' money being given to greedy bankers, as so many people seem to see it.
Even if it had genuinely cost us money, the alternative of letting the banking system collapse would have cost us far more -- and if we can break even, or perhaps make a small profit, that's a bonus. The government might have made mistakes in its time in power, but bailing out the banks was not one of them.
More from Alan Oscroft
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