Bloomberg News

U.K. Looks at Clegg Proposal to Give Away RBS, Lloyds Shares

June 23, 2011

(Updates with shares in seventh paragraph.)

June 23 (Bloomberg) -- A proposal to give every British voter shares in the part-nationalized Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc is one of a number of ideas under consideration, Prime Minister David Cameron’s office said.

Deputy Prime Minister Nick Clegg floated the idea during a visit to Brazil. He told the Financial Times newspaper he had written to Chancellor of the Exchequer George Osborne and Chief Secretary to the Treasury Danny Alexander this week, asking them to consider the case for a “mass share-ownership scheme.”

A proposal drawn up by Portman Capital Partners and backed by Liberal Democrat lawmaker Stephen Williams in March would see about 75 percent of the publicly owned shares in the two banks being distributed to all 45 million U.K. registered voters.

“This option has been put forward as an idea and it’s one we will look at,” Cameron’s spokesman, Steve Field, told reporters in London today. “It’s taxpayers’ money that was used to bail out these banks, and when thinking about how we dispose of those bank shares we need to make sure we get best value for taxpayers.”

Under the Portman blueprint, individuals who hold the shares would be allowed to keep any gain above a floor price of at least 51 pence ($0.83) per share for RBS and 74 pence for Lloyds, the amount the government paid when it bailed out the banks in 2008. The Treasury would receive the proceeds up to the threshold. That would deprive it of any profit from the rescue.

The government owns 83 percent of Royal Bank of Scotland and 41 percent of Lloyds after pumping in almost 66 billion pounds to bolster their capital during the financial crisis.

Bailout Costs

RBS fell 5.1 percent to 36.7 pence at 3:23 p.m. in London. Lloyds declined 3.4 percent to 45.42 pence.

Clegg’s fellow Liberal Democrat, Business Secretary Vince Cable, described the idea as “a very constructive step,” before pointing out that any selloff was “several years hence.”

Speaking to BBC television, Cable said the privatization of British Gas in 1986, when individuals were encouraged to become shareholders, is a model that “in a more ambitious way could be applied to the banking system.”

Clegg himself told the FT the proposal could prove “insuperably complex.”

“I don’t see how this idea puts cash in the government coffers,” Joseph Dickerson, banks analyst at Espirito Santo Investment Bank in London, said in a telephone interview. “And what does the average person know about the valuation of a bank and when to sell? Should higher-rate taxpayers get more shares?”

‘Blue-Sky Thinking’

Conservative lawmaker Mark Field, whose parliamentary district includes London’s financial center, described Clegg’s proposal as “an absolute non-starter.”

“It’s the bluest of blue-sky thinking,” he said by phone. “Once you have uncertainty hanging over the future ownership of the banks, it could take them longer to regain their value. Any divestment needs to be driven by economic not political considerations.”

The idea was also attacked by the opposition Labour Party.

“The test for what happens to the nationalized banks must be the long-term best interests of the taxpayer, not the short- term need to get headlines for Nick Clegg’s overseas trip,” Labour’s Treasury spokesman Ed Balls said in an e-mailed statement. “The government needs to urgently explain what impact this proposal will have on the public finances, what the administration costs are estimated to be, how the scheme would work and what effect it would have on the balance sheets of the banks.”

Cameron’s spokesman said projections produced by the fiscal watchdog, the Office for Budget Responsibility, do not include estimates for income from the sale of shares in RBS and Lloyds as it can’t be quantified “with reasonable certainty.”

--With assistance from Gonzalo Vina in London. Editors: Andrew Atkinson, Eddie Buckle.

To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net; Thomas Penny in London at tpenny@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.


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