THE sale of the taxpayers’ stakes in Royal Bank of Scotland and Lloyds Banking Groups is being hampered by moves to shake-up the UK banking sector, the body that oversees the investments has warned.
UK Financial Investments said it is increasingly focused on a disposal of the Government’s bank investments but added that the Independent Commission on Banking’s review of the sector could hit the institutions’ profits and valuation.
The warning came as RBS shares fell 6% to a five-month low and Lloyds’ stock plunged 7.5% to its worst close in 15 months while investors digested the after-hours release of European stress-test results on Friday.
RBS, which is 83% state-owned, was the UK bank with the lowest capital cushion under the stress tests.
Chairman, Sir David Cooksey said in UKFI’s annual report: “We will continue to work with the banks on their governance, restructuring and long-term strategies, but we will increasingly also be focused on the work of preparing for, and undertaking, a disposal of the Government’s investments.”
Sir David said that the taxpayers’ stakes in the banks had been hit by banking reform plans unveiled by the likes of the ICB.
These could see banks customer-focused businesses ring-fenced from their riskier operations and 41% state-owned Lloyds forced to sell more branches.
“Once implemented, these regulatory changes should strengthen the stability and resilience of the banking sector thereby reducing risks to the UK economy and public finances,” he said.
“However, the cumulative effect of these changes will also impact negatively on the profitability of banks and therefore on the value of the taxpayers’ stakes in Lloyds Banking Group and RBS.”
UKFI chief executive Robin Budenberg added: “Greater regulatory certainty is required to enable both UKFI and the market to make a clearer assessment of the fundamental value of Lloyds Banking Group and RBS, and is therefore likely to be a precondition for a more stable trading performance in the stocks and the initiation of the disposal programme.”
The former UBS banker was paid £148,000 in the year to the end of March, the report revealed, and claimed expenses of £453,000.
All four main UK-listed banks passed European Banking Authority stress tests reported after markets closed on Friday.
But the market remained jittery. RBS, which came out with the lowest capital cushion of the UK banks in tests due to model the impact of a economic slowdown, saw its shares fall 2.1p to 32.97p
Lloyds, owner of Bank of Scotland, finished down 3.34p at 41.345p.
Analysts at Morgan Stanley said investors will seek to scrutinise RBS further due to its relatively narrow pass, which surprised the market. But they said the bank was unjustly penalised because the tests hit investment banks harder and failed to take into account changes to its balance sheet.
Barclays and HSBC fell 7% and 1.5% respectively.
Financial stocks across Europe were hit after some investors complained that the test failed to look at properly examine the impact of a sovereign debt crisis.
Shares in RBS are just two-thirds of the taxpayers’ break-even price while those in Lloyds need to climb nearly 53%.
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