Brown’s legacy: Lloyds Banking Group profits
Gordon Brown’s days as UK prime minister may be numbered but he will leave a legacy for the inheritor of 10 Downing Street. The bank shares he bought amid against much opposition will go some way to squaring the country’s finances in future years.
The announcement that Lloyds Banking Group (LON:LLOY) is back in profit – including the HBoS arm bought with Brown’s blessing – may not swing the general election but it paves the way for the next prime minister to sell the shares profitably.
Lloyds Banking Group’s shares are now at above the 63p level the government needs to break even and Royal Bank of Scotland’s are above the 50p average the state paid to save that bank. But as the scale of recovery at both banks emerges the current profit of a few billion pounds could reach, perhaps, £50bn.
Even spreading the sale over several years, that will make a dent on the country’s budget deficit and national debt.
The public sector will certainly now recover the sums it lent to the banks to keep them liquid. But as well as making a profit on the new capital injected, Lloyds’ news that bad debts are slowing, if repeated at RBS, also means the state will pay out less on the debts it has insured. The Treasury will have received the £25bn premium but face fewer claims than expected.
Maybe it is the traditional role of Labour governments to nationalise companies and Conservative administrations to privatise them, but the state does not usually make a profit.
The “Brown bonus” that the Tories will inherit may seem unfair to Labour supporters but it will allow the outgoing PM a little posthumous glory. It is not his only crafty deal however.
He is still castigated by opponents for selling 400m tonnes of gold over the millennium for £5bn less than it would fetch now, but at the same time he sold five 3G mobile-phone licences for a staggering £25bn just before the dotcom bubble burst, leaving them worth just a small fraction of that amount. And he received more than £1bn from property companies converting to Reits to avoid capital gains tax just before the market collapsed in 2007, wiping out any gains.
Those are hardly election issues and it would be tempting fate for Brown to make the profit on the banks into one in case their share prices fall back. But while the country’s finances are bleak, he is leaving a winning lottery ticket on his Downing Street desk for his successor to cash in.
