British government puts sale of RBS, Lloyds stakes on hold after Brexit vote: sources

Mon Jun 27, 2016 1:03pm EDT
 
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By Andrew MacAskill

LONDON (Reuters) - Britain's government has scrapped plans to sell stakes in Royal Bank of Scotland (RBS.L: Quote) and Lloyds Banking Group (LLOY.L: Quote) this year in the wake of the Brexit vote, sources said, a decision set to leave a multi-billion pound hole in its finances. The Treasury had planned to further reduce its exposure to the banks it took over during the financial crisis, by raising 9 billion pounds ($11.9 billion) via sales of stock to fund managers and a discounted offer to the public.

However, the market upheaval and economic uncertainty triggered by Britons' vote last Thursday to leave the European Union has forced policymakers to shelve disposal plans until 2017 at the earliest, sources close to the Treasury told Reuters.

The finance ministry is braced for a prolonged period of market volatility which it said would make it hard to judge if any sale would achieve value for taxpayers, according to the sources.

"It is going to take quite a while for us to understand the implications for the banks before we could even consider starting to sell," one of the sources said.

While decisions to put financial asset sales on ice will be seen as pragmatic by many, the delays have serious consequences for government coffers.The political and economic uncertainty also risks delaying government plans to sell a portfolio of $15.65 billion of loans held by Bradford & Bingley, a mortgage bank also nationalized during the financial crisis, one of the sources said. Many of those loans were buy-to-let mortgages.

For each month the government holds onto the stakes, taxpayers must shell out about 200 million pounds in additional interest on the debt used to buy the holdings at the height of the financial crisis in 2008, according to data from the Office for Budget Responsibility.

UK Financial Investments, which manages the government's stakes in the banks, and the Treasury declined to comment. Lloyds said the timing of any share sale was a matter for the government and RBS declined to comment.

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A man walks past a branch of The Royal Bank of Scotland (RBS) in central London, Britain August 27, 2014. REUTERS/Toby Melville/File Photo