Lloyds in £1bn tax dispute with HMRC over Irish losses

Bank reveals it is in a £1bn tax dispute with HMRC over the way it has used losses from its Irish buisness to cut its tax bill

Lloyds Banking Group faces a £1bn tax demand from HMRC related to billions of pounds of loss taken in Ireland by the state-backed lender as it wound down its defunct Irish subsidiary.

The lender revealed it was warned in the second half of last year that the UK tax authorities were not happy with its treatment of Irish losses to offset its tax bill, prompting a legal dispute between Britain’s largest retail bank and HMRC.

If the case is decided in HMRC’s favour, Lloyds has said its tax bill will rise by £1bn, with the bank forced to pay a further £600m of tax, as well as write off a £400m deferred tax asset that it would currently be able to write off against future profits.

In a statement to investors the bank said: “The group does not agree with HMRC’s position and, having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due.”

The disclosure of the tax dispute came as Lloyds published its full-year results, which showed the lender had made a pre-tax statutory profit of £415m, reversing a loss in 2012 of £606m.

On an underlying basis, which strips out provisions such as the £3.1bn set aside for payment protection insurance compensation costs, the bank made a profit of £6.2bn.

The profit is the bank’s first in three years and led Antonio Horta-Osorio, chief executive of Lloyds, to confirm he would accept a £1.7m all-share bonus for 2013. The bonus will be deferred until 2019 and will be subject to several performance hurdles linked to the future performance of the business.

As well as Mr Horta-Osorio’s own bonus, Lloyds confirmed it had put aside an overall staff bonus pool worth £395m, equating to an average payout to each of the bank’s staff of £4,500.

Sir Win Bischoff, chairman of Lloyds, said the payment of the bonuses was “proportionate and fair”, adding that the payouts at the bank were “lower than anyone else”.

In an unscheduled update this month, Lloyds pre-released its underlying profit and PPI provision figures as they differed materially from market expectations.

Mr Horta-Osorio said Lloyds had been transformed into a “normal bank”, five years on from its state-funded rescue that saw the taxpayer take a 39pc stake in the bank, since reduced to 33pc.

Lloyds is in the process of preparing a prospectus for a second sale of the state’s holding in the bank that is expected to see the Treasury authorise a further disposal of the shares within months, including a first offer of the stock to the general public.

Mr Horta-Osorio said: “We have continued to improve the bank and the price [of the shares] is substantially above the price at which the first tranche was sold in September, 75p, and the bank is ready to sell another tranche, but it is absolutely up to the UK Treasury to decide when and how to do it.”

Shares in Lloyds fell on Thursday, closing the trading session down 2.72pc at 81.26p, valuing the bank at £41.2bn. However, even at this share price the stock is well above the Treasury’s break even point of 73.6p.

As part of the continuing turnaround of the lender, Mr Horta-Osorio said work had begun on an updated strategy for the bank that will map out its objectives for the next three years. The Lloyds chief said the plans would be published before the end of the year.

“Over the last three years we have reshaped, strengthened and simplified our business to create a low-risk efficient retail and commercial bank that is focused on our customers and on helping Britain prosper. This progress has seen the Group return to statutory profit in 2013 and despite our legacy issues, further strengthen our capital position,” said Mr Horta-Osorio.

He added: “As a result we expect to apply to the regulator in the second half of the year to restart dividend payments. This will be another important milestone on our journey to rebuild trust and confidence in our Group”

Lloyds will in the summer launch the £1.5bn float its 631-branch TSB subsidiary through a listing on the London market.

However, after spending £1.6bn to create the business as part of a European Commission ordered disposal necessitated by its 2008 bailout the sale is not expected to generate a profit for the bank.

The TSB business, previously known as Project Verde, had originally been expected to be sold to the Co-op Bank, but the troubled lender was eventually forced to pull out of the deal as the extent of its own capital problems became clear.

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Barclays cull to clear out senior bankers

Barclays is planning to cut 820 managing director and director-level staff, of which about half are expected to come from its investment banking arm, as part of an effort to reduce costs

Hundreds of senior Barclays investment bankers and managers face being made redundant this year, along with thousands of ordinary staff, as the lender looks to cut as many as 12,000 jobs.

Barclays is planning to cut 820 managing director and director-level staff, of which about half are expected to come from its investment banking arm, as part of an effort to reduce costs across the bank.

UK-based staff will bear more than half of the overall job cuts, with Barclays set to make about 7,000 British staff redundant as it increasingly uses IT to replace jobs and accelerates the closure of branches.

At present, Barclays employs almost 140,000 staff in offices and branches across the world.

Officials from the Unite union yesterday held talks with the bank at its London headquarters to discuss the cuts, which come as the country’s other major high street banks all continue to look for further cost savings

The job losses came as Barclays said it would increase the size of the average bonus paid to its investment bankers by 10pc to £60,100, despite a 37pc fall in the division’s profits last year.

The fall was largely caused by a slowdown in trading activity in the final three months of last year, which led the investment bank to record a loss for the period of £329m.

The Institute of Directors said: “[It] cannot be right in any business for the executive bonus pool to be nearly three times bigger than the total dividend payout to the company’s owners.”

It added: “We would like to see shareholders take a more aggressive role in the governance of the bank.”

Shareholder dividends for 2013 will total £859m, compared to a total staff bonus pool for last year of £2.38bn. This equates to a dividend-to-compensation ratio of 2.77, a slight improvement on last year’s figure of 2.98, when the bank paid out £733m to its investors, but £2.17bn in bonuses.

Andrew Tyrie MP, chairman of the Treasury select committee, questioned Barclays’ decision to defer bonuses by just three years amid a push to extend deferral periods out to at least five years.

“Barclays’ bonus deferral, at three years, looks too short. Shareholders also need to make up their minds whether aggregate remuneration is justified by the return on equity,” said Mr Tyrie.

Fears over the bank’s performance led its shares to trade down more than 7pc at points during yesterday’s session, but the stock rallied to close down 2.17pc at 269.03p, valuing the lender at £43.4bn.

Among the disappointments in Barclays’ results was its continuing inability to generate a return on shareholder equity which, measured on a statutory basis, is just 1pc – while the bank’s cost of equity is put at 11.5pc.

Antony Jenkins, chief executive of Barclays, said he hoped to improve returns so that by 2016 the business would be making a return greater than its cost of equity and defended the bank’s bonuses.

“We need to recruit people from Singapore to San Francisco. We need the best people in the bank to drive long-term sustainable returns for our shareholders,” said Mr Jenkins.

“I understand that there will be some (people) who feel that this decision is the wrong one for Barclays. But it is the decision of the board and myself that this entirely is the right decision for the group and in the long-term interests of shareholders,” he said.

“At Barclays we believe in paying for performance and paying competitively. Ensuring that we have the right people in the right roles serving our customers and clients effectively in a highly competitive global environment is vital to our ability to generate sustainable shareholder returns.”

The release of the results followed two unscheduled announcements in the past two weeks of various financial figures by Barclays. Last month, the bank published a surprise update pointing to its progress on hitting its cost targets and the size of fourth-quarter charges for litigation and financial penalties.

This was followed on Monday by a second announcement following the apparent leak of sensitive financial data that forced Barclays to publish its pre-tax profit figures one day ahead of schedule, which showed it had made a statutory pre-tax profit of £2.9bn and £5.2bn after adjusting for one-off items.

Barclays is the first major British lender to report its full-year results and will be followed tomorrow by Lloyds Banking Group.

In the case of Lloyds, the bank has already published its pre-tax profits after its own unscheduled update this month where it said it had made an underlying profit for last year of £6.2bn.

Concerns were also raised over the fall in the bank’s Tier 1 core capital ratio, which fell from 9.6pc at the end of the third quarter to 9.3pc by the end of last year.

The fall was driven by larger-than-expected regulatory capital requirements and highlighted the increased capital costs the bank will face as it attempts to improve returns.

Filippo Alloatti, a senior analyst at fund manager Hermes, warned that Barclays executives faced a “conundrum”. He said:

“The much-maligned investment bank is still generating more than 60pc of group profits, helping to slowly expand its capital base and pay a dividend. However, the very same investment bank is, considering Basel [III capital] requirements and the Financial Stability Board’s mandate, limiting the strategic options for Barclays.”

Mr Jenkins said banking was going through a “100-year transformation” as technology and cost pressures reshape the industry, and he was optimistic that Barclays was well set for a “pivotal” 2014.

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UK government could sell off Lloyds bank stake in 2014 - Telegraph

 The British government could sell off all of its 18.4 billion pound stake in the Lloyds banking group in 2014, the Daily Telegraph reported, citing unnamed sources.

The newspaper reported that the entire government holding could be sold off in the next 12 months in a combination of retail and institutional offerings.

"Post-results is when a further institutional offering would make most sense. After that, the thinking is an autumn sale, combining an institutional and a retail segment, is a realistic prospect," a source was quoted as saying by the newspaper.

The UK government has already sold off 6 percent of its stake in the partly nationalised bank, raising over 3.2 billion pounds in September this year.

The government currently holds around 33 percent of the bank, five years after Lloyds and rival Royal Bank of Scotland were bailed out by the government at the height of the credit crunch.

Shares in Lloyds closed at 78.84 pence on the London Stock Exchange on Friday, valuing the group at 56.5 billion pounds.

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Sale of Lloyds Banking Group stake left Treasury £230m down

National Audit Office has scotched claim by George Osborne that Treasury made a profit of £60m from selling Lloyds shares

Taxpayers took a hit of at least £230m through the sale of a stake inLloyds Banking Group, the National Audit Office said on Wednesday, in a report that contradicts government claims that it a made a profit on the privatisation of the bailed-out institution.

On the day the 4.2bn shares in Lloyds were sold in September George Osborne tweeted: "Confirm have sold 6% of Lloyds shares at 75p. Profit for taxpayer & important step in plan to get their money back and repair economy."

The independent state auditor cast doubt upon the claim that a profit of £60m had been secured from selling off 6% of the state-owned stake in the bank, after it examined the borrowing costs incurred by the government when it bailed out the banks in 2008.

"Taking account of the cost of borrowing the money to buy the shares, there was a shortfall for the taxpayer of at least £230m," the NAO said.

Even so, it concluded that the transaction represented value for money. It said the Treasury should take the cost of financing the bailout into account when deciding whether to hold on to shares in Lloyds rather than selling them. The government is yet to sell off any of its 81% stake in Royal Bank of Scotland.

Its calculations could suggest that if the remaining 33% stake in Lloyds were sold off at a similar price and in a similar way then the loss to the taxpayer on the bailout could amount to £1.5bn.

The NAO's calculations show the Treasury could have claimed a higher profit of £120m – using a lower average buying price of 72.2p a share rather than 73.6p – by taking into account fees paid by Lloyds to the Treasury.

The chancellor has said that the next tranche of Lloyds shares is likely to be sold off to the public. The NAO said the move was ruled out in September because it would have taken six months to conduct a share sale this way and might not have produced the best return for taxpayers.

The NAO report, which backs the decision to sell the Lloyds shares and the way the sell-off was conducted, sheds some light on the processes considered by UK Financial Investments, which looks after taxpayer stakes in the bailed-out banks.

The financial secretary to the Treasury, Sajid Javid, focused on the NAO conclusion that the sale was value for money. He said: "The proceeds from the sale have reduced the national debt by over half a billion pounds but, as the NAO also rightly points out, the country has had to pay a high price for the extra debt it has taken on because of the financial crisis."

The NAO said that during 2012 and 2013 UKFI was approached by three potential purchasers and informal discussions took place but no deal concluded. Instead UKFI had concluded a sale to institutional investors was the best option.

Executives from UKFI have previously revealed that they ruled out selling the stake at a price above 75p because demand would have fallen away and it would have required selling 60% of the shares to institutions seen as shorter-term investors, such as hedge funds.

Such short-term investors ended up with 20% of the shares sold after approval from the chancellor. The NAO attempted to analyse if the shares that had been bought had been quickly sold on and found that while one institution had reduced its shareholding by about 10%, there had been no change in two institutions' holdings, and one institution had increased its holding by about 20%.

Amyas Morse, head of the NAO, said: "The programme of sales of the taxpayers' holdings of bank shares has got off to a good start. Sale options were reviewed thoroughly and UKFI looks to have got its timing right. The sale took place when the shares were trading close to a 12-month high and at the upper end of estimates for the fair value of the business".

António Horta-Osório, the boss of Lloyds Banking Group, was handed a £2.3m share bonus last month because of the rise in the bank's shares which closed last night at 76p.

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Banking reform bill could be approved before Christmas

Bill designed to prevent further banking scandals and misconduct enters Lords for what could be the last time

Andrew Tyrie's work is nearly done. The Conservative politician, who has been a key figure in attempts to clean up the banking system, stood up in the Commons last week to remind fellow MPs of the tasks that had been set for the parliamentary commission on banking standards, which he had chaired.

The first was to report on professional standards in the banking industry in the wake of the Libor rigging crisis, and the second was to outline the lessons that could be learned for the government, while making recommendations for legislative change.

Much of that work may be concluded this week, with the 200-page banking reform bill entering the Lords on Monday for what could be the last time. With just one amendment to the bill still proving contentious, there is an expectation the work will be completed before the Christmas recess.

The legislation includes a package of measures intended to force senior bankers to take responsibility when things go wrong, allowing bankers to be charged with reckless misconduct if their institutions go bust, and forcing them to erect an "electrified" ringfence between their high-street and investment banking operations.

Last week's debate in the Commons coincided with a timely reminder of the scandals that had first set Tyrie and his fellow commissioners – made up of lords and MPs including the former chancellor Lord Lawson and the Archbishop of Canterbury, Justin Welby – upon their task. Lloyds Banking Group was fined a record £28m for a bonus culture that saw staff mis-sell financial products, while Royal Bank of Scotland, which was also bailed out, was fined £60m for breaching US sanctions rules.

"The banks have discovered that the scale of the damage done by the revelations and the scale of the fines that are now being imposed are systemic in implication for their institutions and that has shaken them up a lot," Tyrie told MPs last week. "But I do think the culture at the top of our banks is changing. The task of our legislation is to entrench that change for a generation. We have had this crisis. The horse has bolted. What we have got to do now is devise a stable door that can keep the next horse in."

Stuart McWilliam, a campaigner for Global Witness, said changes to the rules facing top bankers were a sea change because the City regulator, the Financial Conduct Authority, would be better able to hold banks to account. "It gives the FCA the power to hold the most senior bankers personally responsible for failures at their banks – a pretty good incentive for changing bankers' behaviour for the better," he said.

Alan Bainbridge, a lawyer at Norton Rose Fulbright,described the changes to how top bankers are authorised to work in the City as groundbreaking.

The existing approved persons regime will be changed with a new system aimed at top bankers taking responsibility for their actions and a new licensing regime. There is scepticism about whether an offence of reckless misconduct, under which bankers can be tried if their institutions collapse, can be used in practice.

But Conservative MP Mark Garnier, who sits on the Treasury select committee and was on the parliamentary commission on banking standards, likened it to a "nuclear deterrent" in the Commons last week.

One of the most crucial measures is the "electrification" of the ringfence between high street and investment banks. Bainbridge said this was "tantamount" to the Glass-Steagall rules imposed after the Great Depression in the US in the 1930s and only dismantled 15 years ago.

Lord Sharkey, the Liberal Democrat peer whose amendment on capping payday loan rates forced the government to act to restrict high rates of interest, said the electrification was the "key action" from the legislation.

"Parliament will need to keep an eye on how this really works. Will Chinese walls really be sufficient? Will the culture of investment banks continue to dominate the management thinking of retail banks held in the same groups," said Sharkey.

The Policy Exchange thinktank is warning of rising costs to customers from the ringfence, which does not need to be erected until 2019. Omar Ali, UK head of banking and capital markets at accountancy group EY, said the legislation meant that the "fabric of banking is changing" and the UK will have the most stringent set of rules anywhere in the world. Banks could end up becoming too risk averse, which could result in restricted lending to the real economy, he warned.

Even as royal assent comes closer, questions are still being asked about whether legislation can change the culture of banking. Garnier told MPs last week that a new industry body monitoring banking standards and the emphasis on top bankers taking responsibility was significant.

"An organisation such as HSBC has 270,000 people working for it, so no matter how sincere the integrity of the individual at the top, we must work out a mechanism to drive integrity throughout the system. Personal accountability for the senior management of the banks is crucial in that.

"I keep coming back to this point: if [HSBC's chairman] Douglas Flint is waking up at 3 o'clock in the morning worrying that somebody in Kidderminster is getting something wrong, that is a good thing."

Sharkey is among those who think that increased competition on the high street is also needed. The big four – Lloyds, RBS, Barclays and HSBC – control over 75% of the market.

"The banking reform bill addresses the regulatory issues, as it should. Banking culture is less easy to fix. There are some who believe that there is still no real competition in our banking system," Sharkey said. "What [will] keep them honest is competition for customers."

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Hedge fund sells up after forcing Co-op to cede control of bank

Aurelius sells bonds at profit before crucial vote
Co-op bank admits it is losing current accounts

One of the US hedge funds which forced the Co-operative Group to cede control of its troubled bank has sold its investment ahead of a crucial vote on a rescue £1.5bn fundraising.

Just hours after the Co-operative Bank admitted it was losing current accounts because of concerns over its future as an ethical institution amid the intervention of hedge funds and the scandal over former chairman Paul Flowers, it emerged that the US hedge fund Aurelius had sold its position in the bank's bonds.

Aurelius – best known for forcing Argentina to pay out on its debts – had bought up Co-op bonds as they collapsed in value following the downgrade of the bank to junk status in May. Since then the bonds have risen in value and have now been sold on to another hedge fund, London-based Perry Capital. Perry pledged to continue backing the crucial restructuring of the bank just hours before Friday's deadline to vote on the deal.

The so-called LT2 group of hedge funds, which included Aurelius and has forced the changes on the Co-op Group, made no reference to the crucial change in its membership when it reiterated its support for the restructuring on Thursday morning. If bondholders vote to back the restructuring of the bank, the wider Co-op Group, which includes supermarkets and funeral homes, will end up with just a 30% stake in the bank that bears its name. The deadline for votes is 4.30pm on Friday.

The Co-op, in an unscheduled announcement outlining technical changes to the terms offered to LT2, insisted that its savers – whom it relies on to finance its business – were not moving their cash out of the bank and its deposit base remained stable.

Flowers is on bail until January after being arrested following a Mail on Sunday report that showed a video of the 63-year-old Methodist minister handing over cash to apparently buy drugs. Even before Flowers' arrest there was concern that the intervention of hedge funds in the Co-op fundraising could make it difficult for the bank to maintain its ethical stance.

"These recent events, together with the competitive landscape in which the bank operates, the introduction of seven-day account switching and the associated increased competitor marketing activity at a time when the bank has been constrained in its ability to undertake its own marketing activity, may be a contributing factor to an increase the bank has seen in the switching out of current accounts," Co-op said.

The wording is tougher than that in the prospectus sent to bondholders on 4 November to back the restructuring when it referred to a "material reduction" in the number of people moving their accounts to the bank since the seven-day switching service was introduced in September. At that time it said corporate customers had taken away £1.4bn worth of deposits since the ratings downgrade in May.

The admission by the Co-op bank came as its regulator, Andrew Bailey, chief executive of the Prudential Regulation Authority, said the regulatory approval granted to enable Flowers to become chairman in 2010 was "before his time".

Bailey, who took over the top regulation job in the summer of 2011, said he had required the Co-op bank board to be strengthened and had set out hurdles for the bank to meet if it was to be granted approval for the takeover of 631 branches from Lloyds Banking Group. That deal, called Verde, collapsed this year.

Bailey insisted he did not "know the whole story" about what had happened or about any potential intervention from politicians keen to see the Co-op take over the Lloyds' branches. He added: "The real important thing today is not to deal with Reverend Flowers's antics but to deal with stabilisation and restructuring of the bank."

Lord Myners, City minister during the 2008 banking crisis, called for institutional investors to be represented when bank directors are appointed. "We need a fundamental change in accountability and alignment within the board room. Shareholders had got off scot-free when it came to culpability for bank failures and the cost to the economy," Myners said.

Lloyds looks to lord

The Conservative peer Lord Blackwell is the leading candidate to become the next chairman of the bailed-out Lloyds Banking Group.

The former head of Sir John Major's policy unit, and a serial non-executive director, already has a seat on the bank's board and chairs its insurance arm Scottish Widows. He previously sat on the board of Standard Life and retailers Dixons and was once a partner at the management consultants McKinsey.

The bank, whose chief executive, António Horta-Osório, received a £2.3m bonus last week because of the rally in its shares, has been seeking a successor to Sir Win Bischoff who wants to retire at next year's annual meeting.

The government began to sell its stake in Lloyds in September and now owns a 32% shareholding, which is expected to fall further before the general election through a sell-off to retail investors.

Lloyds would not comment on its next chairman on Thursday.

Article Source : http://www.guardian.co.uk
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Lloyds boss in line for bigger bonus as government makes £60m on share sale

António Horta-Osório could be in line for more than £2.2m as chancellor claims part selloff is sign of improving economy

António Horta-Osório the boss of Lloyds Banking Group, is in line for a bigger than expected bonus after the government sold off the first tranche of its stake in the bailed-out bank for a £60m profit.

The Lloyds chief executive stands to collect more than £2.2m if the shares stay above 73.6p – the price paid by taxpayers for their stake during the 2008 bank bailouts – for 30 consecutive days or if the government sells off a third of its stake above 61p, the price the shares were trading at during the bailouts.

His bonus, when it was awarded in March, was originally worth £1.5m but it has steadily increased in value as the 3m shares he was awarded have risen from 49p to 74.65p – the level they closed at on Tuesday night after the government sold off 15% of its holding. He will receive the shares in 2018 if the requirements are met.

The share sale, which leaves the taxpayer with a 32.7% stake, down from 38.7%, prompted George Osborne to claim the economy had turned a corner and to insist he would get back the entire £65bn of taxpayers' money ploughed into the banks to keep them afloat in 2008- 2009.

The share sale came five years to the day after Lloyds TSB rescued HBOS to create the enlarged group. UK Financial Investments, the government body that looks after the stakes in the bailed-out banks, said the 6% stake – some 4.2bn shares, worth £3.15bn – was placed with major investors at 75p a share. Some £45bn of the £65bn bailout cash was used to prop up Royal Bank of Scotland but a sale of the taxpayer's 81% stake is being delayed by a review of whether to hive off a bad bank.

Osborne tweeted: "Confirm have sold 6% of Lloyds shares at 75p. Profit for taxpayer & important step in plan to get their money back and repair economy."

He later spent part of the day with Horta-Osório at one of Lloyds' operations in Birmingham. "If you look at what has happened over the last 12 hours with Lloyds, you have investors from around the world investing in a British bank. That is a sign the British economy is turning a corner," he said.

"Five years ago the previous government forced British taxpayers to put a huge sum of money into bailing out the banks. That was a big ask of the British public. I have been determined ever since I became chancellor to get that money back for taxpayers."

The chancellor said the money would be used to reduce the national debt by £586m, based on the 61p value of the Lloyds stake in the nation's accounts.

Ian Gordon, banks analyst at Investec, said the government may now be able to sell off its entire stake before the May 2015 general election.

He said: "Many aspects of government/Bank of England policy – [such as] the 'Funding for Lending' scheme, which caused the collapse of retail savers' interest rates, and overt support for the housing market through the 'Help to Buy' scheme – have been distinctly positive for Lloyds".

The biggest block of buyers for shares was saidHalf the shares are understood to have been sold to UK investors, with 30% going to the US and 20% to other international buyers.

The government has promised not to sell off any more Lloyds shares for 90 days and there is little expectation of a quick sale of RBS while the review into whether to a create a bad bank is under way.

But analysts at Jefferies reckoned it might yet be possible. "UKFI's sale of 6% of Lloyds in a simple manner is unequivocally positive for that bank and also for RBS, in our view."

Article Source : http://www.guardian.co.uk

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Government kicks off Lloyds sale

Announcement after closure of stock exchange marks significant step in returning bailed out bank to private sector

The government on Monday began to sell off its stake in Lloyds Banking Group in a move that marks a significant step in returning the bailed out bank to the private sector five years after the financial crisis began.

The announcement was made just after the stock market closed when the banks advising the government started to approach major investors about buying chunks of the 4.2bn shares – currently valued at £3.3bn – being sold.

About 6% of shares in the group are being sold, which would reduce the government's stake from 38.7% to 32.7%.

The timing, in the midst of the Liberal Democrat party conference, means the Lloyds shares will be sold ahead of the £3bn privatisation of Royal Mail, although the size of the stake being sold is smaller than some City analysts had expected.

After conducting a daily analysis of the Lloyds' share price throughout the summer, UK Financial Investments (UKFI), the body set up to look after the stakes in the bailed out banks, advised George Osborne earlier on Monday afternoon that it is now time to kickstart the privatisation.

Osborne said on Monday night: "Five years ago the previous government used taxpayers' money to bail out the banks and I've been absolutely determined to get that money back for taxpayers so we can pay down debt. Today we have started to do that and it is another step in the long journey to repair what went so badly wrong in the British economy."

The exact price at which the shares are sold was expected to be announced on Tuesday, as the fifth anniversary approaches of the rescue of HBOS by Lloyds TSB to create the enlarged Lloyds Banking Group. The bank was eventually bailed out with £20bn of taxpayer money.

The government is expected to be able to claim it has made a profit – albeit a small one – on the sale which has been the subject of much speculation since the chancellor's Mansion House speech in June when he signalled preparations for the privatisation of Lloyds but played down the prospect of a quick sale of bailed out Royal Bank of Scotland.

In that speech, Osborne signalled that after a sale of Lloyds shares to major institutions, retail investors would be given the chance to buy shares. This option has not been ruled out, and the Policy Exchange thinktank is recommending a sale of the remaining stake through a mass distribution to taxpayers.

Since the speech, major investors have been sounded out by UKFI and its advisers about buying the shares and have already signalled their willingness to buy the stock, which has rallied sharply – in part helped by the government's housing schemes, which have bolstered the mortgage market.

"We want to get the best value for the taxpayer, maximise support for the economy and restore them to private ownership. The government will only conclude a sale if these objectives are met," a Treasury spokesman said.

But Chris Leslie, shadow financial secretary to the Treasury, said Osborne was continuing to duck "serious reform of our banking sector".

"It's vital that taxpayers get their money back and this must be the prime consideration in the sale of the government's stakes in the banks. And as Labour has consistently said any profits from the sale should be used to repay the national debt," Leslie said.

The shares closed on Monday night at 77.3p – above the 73.6p average price at which the government spent £20bn buying the stake. The shares are likely to be sold at a slight discount to that price but still higher than the average price at which they were bought and well above the 61p stated in the national accounts.

The 61p level represents the average price at which the shares were trading on the days the government bought the shares, rather than the actual price paid.

The government had already indicated it regards 61p as its benchmark for the sale and this is the price to which it has linked the £1.5m bonus of the chief executive of Lloyds, António Horta-Osório. He can receive his bonus if a third of its stake is sold above 61p.

Horta-Osório said the sale "reflects the hard work undertaken over the last two years to make Lloyds a safe and profitable bank that is focused on supporting the UK economy".

UKFI – which also announced that James Leigh-Pemberton, son of former Bank of England governor Robin Leigh-Pemberton, is to be its new boss – said it would not place any more shares for 90 days.

Paras Anand, head of European equities at Fidelity Worldwide Investment, said the placing was "a clear sign of confidence that the bank is well on the road to recovery".

RBS sale must wait

The launch of the Lloyds shares sale puts its prospects in stark contrast to those of Royal Bank of Scotland, the other financial institution rescued with taxpayer money.

While Lloyds embarks on its path back into private hands, a sale of RBS – which is 81%-owned by the taxpayer – is clearly further away. Its share price is still well below the level where taxpayers stepped in and George Osborne has commissioned a review by investment bankers at Rothschild into whether it should be broken up into a good bank and a bad bank.

The rescued bank's boss Stephen Hester resigned in June in a move intended to speed up a sell-off of the taxpayer stake, bought for £45bn in 2008 and 2009 to stop the Edinburgh-based bank collapsing.

RBS managementrs have said it could be ready for sale from the middle of 2014 – or even earlier. But the Rothschild review process delays any potential privatisation and the chancellor has said selling the government's stake is "some way off".

The results of the Rothschild review are expected later this month and in the meantime support for a split has been growing.Shares in RBS closed at 366.5p last night, a level that represents a £12bn loss on the money ploughed in by the taxpayer, at an average price of around 500p.

Article Source : http://www.guardian.co.uk

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Son of former Bank of England governor appointed CEO of UKFI

James Leigh-Pemberton, current UK head of Credit Suisse, will head UK Financial Investments

The son of a former Bank of England governor has been appointed chief executive of the body that manages government stakes in the Royal Bank of Scotland and Lloyds Banking Group.

James Leigh-Pemberton, currently UK head of Credit Suisse, will head UK Financial Investments (UKFI), the body created in November 2008 as part of the UK's response to the financial crisis. He is the son of Robin Leigh-Pemberton, who was Bank of England governor for a decade until 1993.

George Osborne hailed Mr Leigh-Pemberton as "the right person" to aid the recovery of the UK banking system.

Leigh-Pemberton replaces O'Neil at the helm of UKFI, who is taking up a position at Bank of America Merrill Lynch.

The chairman of UKFI, Robin Budenberg, is also stepping down. Leigh-Pemberton will become executive chairman when Budenberg leaves at the end of the year.

Osborne said: "I'm delighted that UK Financial Investments has been able to secure James Leigh-Pemberton's appointment as chief executive and, in due course, executive chairman. His significant experience in the financial services industry, gained over two decades, makes him the right person to take us through the next phase of our plan for the recovery of Britain's banking system.

"I'd also like to record my sincere thanks to both Jim O'Neil and Robin Budenberg for their invaluable contributions towards building a stronger banking system that supports Britain's economy, businesses and consumers."

The government currently owns 81% of Royal Bank of Scotland and 39% of Lloyds.

Article Source : http://www.guardian.co.uk

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Lloyds must help TSB, Office of Fair Trading says

Lloyds Banking Group now required to bolster TSB's profitability by £50m a year in its first four years while giving it another £40m

Lloyds Banking Group has been ordered to help the 631-strong TSB branch network become more profitable under a series of measures set out by the Office of Fair Trading to make the offshoot a stronger high street competitor.

The move will be seen as clearing the way for government to kickstart the sale of its stake in 39%-taxpayer owned Lloyds Banking Group, which was first signalled by chancellor George Osborne in his Mansion House speech in June.

But the OFT's verdict is a frustration for Lloyds which just two days ago launched TSB as a new brand with much fanfare. It will now be required to bolster TSB's profitability by £50m a year in its first four years while giving it another £40m. But Lloyds will be relieved that is not being forced to include more branches in the spun-off TSB, which is likely to be floated on the stock market next year.

The announcement by the OFT follows an analysis commissioned by Osborne in June of whether the sale of the TSB branches as well as the 315 outlets by Royal Bank of Scotland – ordered by Brussels as a condition of the 2008 taxpayer bailouts – will be enough to increase competition on the high street.

The OFT concludes that the RBS sell-off, codenamed Rainbow, does not need alteration. A separate analysis of splitting RBS into a good and bad bank, also commissioned by Osborne, is ongoing. Business secretary Vince Cable said: "We must not forget the potential implications of a 'good bank/bad bank' split of RBS".

The competition body acknowledges that asking Lloyds to put more branches in to the TSB network could risk "incurring further delay and additional sunk costs" but wants steps to be taken to ensure that the TSB offshoot attains a 4.6% share of the current account market. As currently constructed, the OFT estimates TSB's current account market share is between 4% and 4.5%.

The announcement by the OFT came as a top Bank of England official attempted to justify his claim that bad lending by the Britannia building society was the cause of the £1.5bn capital hole in the Co-operative Bank, which merged with the mutual lender in 2008.

Andrew Bailey, deputy governor of the Bank of England, wrote to the Treasury select committee to set out the cause of nearly £1bn of losses on loans at the Co-op.

Bailey provided the analysis of the Co-op's losses following evidence given to the committee last week by Neville Richardson, the former head of Britannia which merged with Co-op in 2008. Richardson, who ran the combined entity until 2011, told MPs that he had left the organisation with "no issues" and insisted that Britannia's loan book was well managed and in line with other lenders.

In a letter obtained by the BBC, Bailey tells the committee's chairman Andrew Tyrie that some 75% of the £970m of bad loan losses at the Co-op between the beginning of January 2012 and the middle of 2013 were in the bank's non-core book, which in turn is made up of between 85% and 90% of former Britannia loans in 2013 and around 75% in 2012. Of the £970m, £288m were from the core lending book and £682m from the non-core book.

Article Source : http://www.guardian.co.uk

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Royal Mail privatisation will not affect postal delivery – Vince Cable

Business secretary says postal service sell-off will not threaten universal service obligation to deliver to 29m UK homes

The Royal Mail's duty to deliver to all 29m homes in the UK will survive privatisation, the government has said, as it unveiled plans for the most significant state sell-off since the railways in the 1990s .

The pledge came as business secretary Vince Cable announced long-awaited plans to float the Royal Mail on the London Stock Exchange this year, and confirmed that postmen and women would be entitled to free shares in the business.

Critics argued that the privatisation of an institution first opened to the public 378 years ago would mean post office closures, the erosion of six-day delivery in rural areas and worse pay and conditions for postal workers. Speaking in the House of Commons, Cable said privatisation was "an irreversible course" that would secure the future of Royal Mail in the face of competition.

"The government's decision on the sale is practical, it is logical, it is a commercial decision designed to put Royal Mail's future on a long-term sustainable business. It is consistent with developments elsewhere in Europe where privatised operators in Austria, Germany and Belgium produce profit margins far higher than the Royal Mail but have continued to provide high-quality and expanding services," he said. "Now the time has come for government to step back from Royal Mail, and allow its management to focus wholeheartedly on growing the business."

The Communication Workers Union (CWU), which represents two-thirds of the Royal Mail's 150,000 workforce, vowed to fight the sell-off and accused the government of ignoring the views of the public.

The Labour party, which attempted to part-privatise the service in 2009, accused ministers of pushing ahead with the sale to dig the chancellor out of a financial hole caused by a rise in government borrowing. Market analysts expect Royal Mail will be valued at £3bn when it floats later this year. The public will be able to apply for shares, although Royal Mail workers will be allowed first in the queue if they want extra shares on top of the 10% share guaranteed to them.

Cable said the "overarching objective" of privatisation was to secure the universal service obligation that requires mail deliveries to any UK home six days a week, which has been threatened by a slump in profits in the wake of a 25% decline in letters over the last decade.

But Dave Ward, the CWU's deputy general secretary, said the business secretary was "off the pace" on the economic reality of the six-day universal service, which he predicted would not survive in rural areas and remote regions under privatisation.

Warning that privately-owned companies will seek a relaxation of the obligation if they offer their own doorstep delivery services around the UK, he said: "We are talking about an economic reality. These [delivery] companies will lobby against the six-day service. It simply will not make the money to secure their investment."

The national network of 11,780 Post Offices, a separate company from Royal Mail, will remain in public hands, a promise that failed to reassure the National Federation of SubPostmasters', who accused the government of taking "a reckless gamble" with the network that would lead to post office closures.

"If privatisation goes ahead, we have very real fears that the Royal Mail will rip up its the current agreement with Post Office Ltd [to provide Royal Mail products and services] in an aggressive bid to maximise profits for its shareholders," said NFSP general secretary George Thomson.

Chuka Umunna, shadow business minister, said the recent doubling in profits at Royal Mail to £403m also called into question the assumptions behind the "fire sale". "They now want to privatise the profits at the time it is making money. How can this policy make sense?"

Cable pledged that private ownership would not trigger any change in post office workers' terms and conditions, while the Royal Mail promised "a legally-binding and enforceable contract with the CWU" to enshrine these rights.

Dave Ward at the CWU said Cable's guarantees "are not worth the paper they are written on", while existing agreements with were "completely inadequate". Strike action was inevitable, he said.But the government hopes that giving away shares to employees – the largest worker share offer in nearly 30 years – will soften opposition to the sale. Under the scheme, eligible employees would be entitled to free shares, but would be unable to sell them for at least three years.

Moya Greene, Royal Mail's chief executive, who has been courting potential investors in the UK, North America and continental Europe, said the sale would give employees "a meaningful stake in the company" and the public "the opportunity to invest in a great British institution".

British Petroleum, October 1979

Now a publicly traded company with a large number of US shareholders and institutional investors including BlackRock

British Aerospace, February 1981

Now BAE Systems, the company is traded on the FTSE 100 and major institutional investors include Invesco and AXA

British Telecom, December 1984

Now a publicly traded company with institutional investors including Invesco, BlackRock and Legal & General, and more than a million small shareholders

British Gas, December 1986

Following a demerger in 1997, British Gas became part of the newly formed Centrica, which is publicly listed and whose shareholders include Invesco and Legal & General

British Airways, February 1987

A listed business, merged with Spain's Iberia and owned by International Airlines Group

BAA, July 1987

Now called Heathrow Airports Limited and owned by a consortium including Spain's Ferrovial and China's sovereign wealth fund

British Steel, December 1988

After it merged with a Dutch steel producer and became Corus, it was bought by India's Tata Steel

Water (10 regional companies), December 1989

Thames Water is part of Kemble, which is owned by a number of institutional investors and pension funds, including China's sovereign wealth fund and funds managed by Australian group Macquarie. Southern Water is owned by Greensands Investments, a consortium of pension and infrastructure funds

Vince Cable issues his Commons statement on the Royal Mail privatisation plans. He said this was 'an irreversible course' that would secure the future of Royal Mail in the face of rising competition

British Coal, 1994

Its administrative functions were transferred to the government's Coal Authority, while its mines were transferred to UK Coal, which went into administration this week.

British Energy, 1996

Part of French state-owned group EDF

Stage in process: a 10-year contract has been awarded to US-based company Bristow, which will take over duties from the RAF and Royal Navy from April 2015

Student loan book/Student Loans Company

Stage in process: Vince Cable has already announced the sale of a £900m book of loans. It is possible that the rest of the £45.9bn loan book could follow. Bidders could include banks, funds and financial institutions

Urenco

Stage in process: the government put its one-third stake up for sale in April, after securing agreement from its Dutch and German partners. Bidders could include consortia of financial buyers – most likely infrastructure investors and sovereign wealth funds – and trade buyers

Plasma Resources UK

Stage in process: the government announced in January it was examining a partial or whole sale of its blood plasma business. Possible bidders include bioscience and healthcare companies, as well as private equity firms

Lloyds Banking Group and Royal Bank of Scotland

The bailed-out banks will be fully privatised, but the government has not indicated when. It is likely to sell its shares to investors on a phased basis, starting with Lloyds. The government would like to see them fully returned to the private sector by the next election in 2015

Article Source : http://www.guardian.co.uk

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