How Much Has Lloyds Banking Group PLC Cost Taxpayers?

So, Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) cost taxpayers billions?

That’s the common wisdom — that the government threw all that money into the pit created by greedy bankers who brought the industry to its knees, and it’s a cost we just have to bear.

It’s true that the money amounted to a pretty big sum — it’s not quite up to the staggering £46bn so far pumped into fellow struggler Royal Bank of Scotland, but the total spent on Lloyds amounted to the not-inconsiderable sum of £21bn.

UK taxpayers ended up owning 43.4% of Lloyds for that £21bn. So what did we get for it?


We got a couple of tough years for one thing, with Lloyds reporting a pre-tax loss of £3.54bn in 2011 — peanuts compared to RBS’s record £24.1bn loss in 200, but pretty substantial. And back in 2009 in the depths of the crisis, although Lloyds recorded a pre-tax profit of £1.04bn, that did come after suffering an effective loss of £24bn on bad loans — largely commercial property loans that came with Lloyds’ purchase of Halifax Bank of Scotland (HBOS).

The bank went on to further losses in 2012, but was actually some way ahead of RBS in recording a pre-tax profit (albeit of of a modest £415m) in 2013.

Bright future

Prospects for the next two years are already looking good, with a pre-tax profit of around £5.2bn forecast for 2014, rising to £5.7bn for 2015. Dividends are on the way back too — there’s a modest 1.9% yield expected this year, but that should rise to 4.2% next year.

The share price? Up more than 60% over the past 12 months, to the 80p level today — and over the past two years it’s almost doubled. So what does that leave us with?

The government sold off a chunk of its Lloyds holdings last year, raising £3.2bn, and is currently left with a 32.7% stake. With Lloyds having a market cap of £56.9bn today, that’s worth £18.6bn — and we’re actually in profit with a total value of £21.8bn.

We did well

But that’s not all. Though the shares have recovered, they’re still only on a forward P/E of around 11, and the price looks likely to rise further – as long as those forecasts prove accurate.

The FTSE’s long-term average P/E is about 14, and I’d expect Lloyds to command that kind of valuation before much longer — if it happens, we’ll end up sitting on a total of about £27bn, which really isn’t too bad for our part in saving the country’s banking industry.

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Alan does not own any shares in Lloyds or RBS.