Thoughts on politics and life from a liberal perspective

Sunday, 8 August 2010

Should the government be selling its Lloyds TSB shares now?

Lloyds TSB announced an unexpected profit of £1.6 billion for the first half of 2010 this week.

Given that the government owns a substantial chunk of the bank this is very good news for taxpayers. In fact the current stock price is over 73p per share which is way above the 63p per share break even price for the government. If they were to sell their stake now they would make a handsome profit.

Although this should be caveated by the fact that if they were to try and unload all their shares right now that could have a distorting effect on the market and they may not do as well. I expect when they do eventually unload them they will do it in phases.

The question is, when should they do so? After all it is not their money but the taxpayers. It is an important question to ask now that selling the shares would net a profit. The reason they were purchased in the first place was to prevent the bank from collapsing. It is now pretty clear that that is not going to happen. Things have stabilised.

So why are we still holding onto the shares? I imagine it is tempting for the government to wait and hopefully get an even greater profit. We have a huge deficit and a few more billion would be welcome. But of course share prices can go down as well as up. Although for example Robert Peston's analysis this week would suggest that further profit is quite likely it is no guarantee.

I am interested as to exactly what criteria the government will use to decide how and when to sell. Of course the problem is that if they were to announce this strategy then that in itself could affect the share price. However I very much hope there is a plan to sell and quite soon, now Lloyds TSB is profitable and the government would also make a profit.

After all, we do not elect governments to speculate with our money in the banking market.

1 comment:

Stephen said...

I think its unlikely the government is going to try to make a large profit on the sale of the bank shares it owns. Whilst its certainly tempting to gain the maximum amount of profit it can, it might be better instead to sell it at near break-even price. The situation reminds me slightly of when the Labour government auctioned off the 3G telecom licences, which went for such a high price that when the inevitable telecoms bubble burst, the telephone companies have no resources to maintain their position, and prices rose for the consumer. In the same way, if the government sells off the bank shares at a substantially high profit, it would be easy for any investor to claw back the money from the tax payer by increasing interest rates on credit or decreasing interest on banking accounts.