Monday, July 13, 2009

What an investment!

Government loses £10.9bn in RBS and Lloyds

UK Financial Instruments (UKFI), the body that manages the Government’s shares in some of Britain’s biggest banks, today admitted that it is sitting on paper losses of £10.9 billion. The body, which is in charge of the Government’s 70 per cent stake in Royal Bank of Scotland and its 43 per cent holding in Lloyds Banking Group, also refused to give an indication of when it expected to dispose of the shares in the lenders.

Posted by devo @ 10:22 AM (1204 views)
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12 thoughts on “What an investment!

  • Yep, Crash has picked another winner for us all, aren’t we lucky…

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  • Inaccurate headline – this £10.9b is not yet lost, and the article says so in the first sentence in terminology many reader may not fathom.
    – “paper losses” are, by definition, not realised – that is they are not yet lost ( of course there may be no way to not realise them, but that would require further analysis! )
    Furthermore we were fully aware that there was initially a massive investment ( £34.5b ), that the losses could mount, and that the UKFI would attempt to minimise this, and maximise any profit, whilst acting in a prudent manner. So the taxpayer have moved from a paper loss of around £20b earlier this year and could have been sitting on paper loses far in excess of the original investment. I think they are doing pretty well so far – when the APS in introduced and if & when the double dip recession takes hold that the number could become much scarier!

    Too right that they refuse to disclose any time line for divestment, such common knowledge would not work in their favour given their remit.

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  • ( ^^ “many a reader” )

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  • Pedantry rocks!

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  • “The UKFI said today that every household in the country has more than £3,000 invested in Lloyds and RBS shares.”

    Thanks for that! While our troops are having to “make do” under incredibly demanding and stressful circumstance we have bailed out a bunch of noses in the trough bunch of bankers who were completely and utterly blinded by greed and saturated from top to toe in incompetence.

    My blood is boiling and as if that wasn’t enough:

    “The Government’s stakes in RBS and Lloyds will increase when the Treasury’s insurance scheme – the Asset Protection Scheme – kicks in. At that stage, taxpayers will probably own more than 80 per cent of RBS and more than 60 per cent of Lloyds.”

    We really are being conned.

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  • happy mondays says:

    @ 5, Yep… The whole system is made to suit a few, whilst the rest of us pay for there retirement, bonus schemes, high paid jobs..Again though, i have said this many times on this site, when people finally wake up, hopefully it will be game over for these crooks..

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  • stillthinking says:

    To put that 10.1 bn RBS/Lloyds loss in perspective, UK outstanding mortgage debt is down by 8.1 bn across all banks in the first quarter of this year.

    http://www.pressandjournal.co.uk/Article.aspx/1292797?UserKey=

    However, losses are going up in the future, and the ability to pay down outstanding mortgage debt is going down. When the government halts debt spending, whether through cuts or tax rises, the ability of the UK to pay down debts will shrink. These losses are the tip of the iceberg.
    Keep sight of a basic truth in all this, which is that we must either inflate or default. Paying down outstanding mortgage debt is not inflationary, so we can see these losses appear as defaults occur. The 10bn is neither here nor there against the UK economy but it is a useful indicator that reflationary tactics are -not- working and that our recession unfortunately deepens.

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  • Mr Plumbase says:

    Would it not be unreasonale to wish for a few well manicured heads on poles for this? As it seems I am now a shareholder in this iinstitution how about a dividend when they manage to shift it.

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  • mark wadsworth says:

    This is not a ‘paper loss’, it is a very real loss, the difference being it is as yet unrealised. It’s like all the banks saying “We don’t want to write our loans down to market value”, the fact that you don’t own up to a loss doesn’t make it go away.

    See elsewhere in today’s blog the article about unfunded public sector pensions liabilities being 85% of GDP (a tad on the high side, but not far off the truth), is that just a ‘paper expense’? Methinks not.

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  • MW – marking to market is what makes paper loses!

    “paper” is equivalent to “unrealised”

    e.g. I buy an apple for 30p. I go down my local market and see them selling for 20p, so I mark to market and have a paper loss of 10p. Before I marked to market the only value I had was the 30p I bought for. If I sell the apple I lose 10p ( realise the loss ), if, however, I wait and apples shoot up to £1in the marketplace then I can mark to market and have a paper profit of 70p… only if I sell the apple do I make that profit.

    RE: unfunded pension liabilities: This is all about projected future cash flows and is not really comparable to that of a position in a traded asset and one may call this future unrealised ( i.e. future paper loss; but not simply unrealised ).
    If you were to go into all the possible outcomes with the same distribution as one would expect in the risk-neutral world and average the cash flows present valued to today one would come up with a number representing the present value of the position, this may be a loss – and it’s paper as it’s unrealised, but it is not the value of a traded asset, so one cannot call it a paper loss ( if you could find a market in these pools of pensions it may be near this mark though, and one could call it a paper loss, as one could go out to the market and crystallise that loss )

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  • “I buy an apple for 30p. I go down my local market and see them selling for 20p, so I mark to market and have a paper loss of 10p. Before I marked to market the only value I had was the 30p I bought for. If I sell the apple I lose 10p ( realise the loss ), if, however, I wait and apples shoot up to £1in the marketplace then I can mark to market and have a paper profit of 70p… only if I sell the apple do I make that profit.”

    If you don’t sell the apple, it will rot.

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  • devo – ah, a cost of carry function with a time dependence, how very pertinent.

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