FactCheck: doubts over profits made from Lloyds share sale
“Confirm have sold 6 per cent of Lloyds shares at 75p. Profit for taxpayer”
George Osborne announcing the Lloyds share sale on Twitter, 17 September 2013
George Osborne has been carpet bombing the media since last night with the message that a “major milestone” has been reached.
The government has sold some of its Lloyds shares – heralding the beginning of the end for the banks nationalised under Labour. Back into private hands they go.
The government has only sold 6 per cent of Lloyds shares – or 15.5 per cent of its total holding. Which means we, the taxpayer, still own about a third of Lloyds bank.
On the eve of the Labour party conference, it has provided an opportune moment for Mr Osborne to claim we are turning a corner.
And what’s more, the sale has made us some money, he says.
The government has raised £3.2bn, Mr Osborne told the Treasury committee, and “this is a good outcome for the taxpayer”.
He didn’t say exactly how much the taxpayer had profited from the sale however.
FactCheck whips out its calculator.
The government bought three tranches of Lloyds shares: 7.2bn shares at 182.5p in January 2009, 4.5bn shares at 38.5p in June and finally 15.8bn shares in December at 37p.
The average price the government therefore paid was 73.6p per share. It bought a total of 27,608,563,642 ordinary shares – representing 38.7 per cent of the company – for £20.5bn.
Today’s sale price is 75p per share – 1.4p more than the average price the shares were bought at.
The government has sold 4,282,034,109 shares for a total of £3.2bn.
Of this, the net cash profit – the difference between 73.6p and 75p – is £61m.
But we think it’s worth pointing out that the government borrowed money in order to purchase the shares in the first place.
And FactCheck understands that the government has not included in today’s calculations the cost of borrowing the £3.2bn over four and a half years to finance the stake.
We estimate that it would have cost the government in the region of £450m to borrow £3.2bn (our calculations are: £3.2bn borrowed at 3 per cent interest – the interest rate on 10 year government bonds at the time – would cost £96m a year).
This would cancel out any profits made on the share sale – but then there is the matter of the £2.5bn fee Lloyds paid when it exited the Treasury’s Asset Protection Scheme in November 2009.
So the government was paid £2.5bn by Lloyds for its entire share holding. Today it sold 15.5 per cent of that holding – and that tranche would have netted £380m of the £2.5bn exit fee.
£380m plus today’s £61m profit adds up to £441m – a bit less that the estimated £450m borrowing costs.
The Treasury will not comment on this until assessments on the Lloyds share deal come in from the Office for National Statistics (ONS) and the National Audit Office (NAO).
Mr Osborne’s headline figure is that his share sale has “raised” £3.2bn. But of that figure, there was a net cash profit of just £61m.
FactCheck also notes that the government hasn’t factored in the cost of borrowing the money it used to buy the shares in the first place.
We estimate that the government would have paid £450m interest on the £3.2bn share stake.
If we are right, today’s sale could have actually seen the government suffer a small loss (see the above analysis).
It’s tantalisingly close to making a profit for the public. But there’ll be no cigar until the ONS sings.
By Emma Thelwell