RBS and Lloyds shares handout plan for Free

Each British adult could soon be a shareholder in RBS and Lloyds Banking Group after a plan to hand out shares in the part-nationalised banks was backed by a Lib Dem MP.

Stephen Williams, who is co-chairman of the party’s Treasury policy committee, endorsed the plan to re-privatise the two banks by distributing shares to all 45m adults on the British electoral register.

The plan, drawn up by corporate finance firm Portman Capital Partners, could see each UK citizen receive about 1,450 shares in RBS and 440 in Lloyds.

The Government – or the taxpayer – currently owns 84% of RBS and 43% of Lloyds after the two banks were stricken by the financial crisis of 2008 and bailed out with billions in state funding.

As the banks return to profitability, the Government is expected to sell its stake: Lloyds recently reported its first full-year profit since the financial crisis, and RBS is likely to get out of the red by next year.

Soverign wealth funds in the Middle East, like Qatar’s, are known to be interested in taking big stakes.

But Williams, MP for Bristol West, will back the Portman scheme as a more equitable way to reprivatise the banks, and reward the taxpayer for backing the bailouts.

‘The HM Treasury needs to recover the approximate £66bn it spent bailing out the two banks,’ Mr Willams wrote today.

‘There is a general feeling in the country that we need to get something positive in return for the bailout.’

Q&A: How the Portman plan would work

The Portman plan guarantees that the Treasury would get its bailout money back eventually, as shares could not be sold until they breach a minimum or ‘floor price’.

That would probably be the Treasury’s break-even levels: 51p per share for RBS and 74p per share for Lloyds.

Shareholders could then sell the shares, at which point they would pocket the profit above the floor price, while the Treasury would receive the floor price capital.

RBS is currently trading at 44.1p and Lloyds at 61.97p.

If the shares stay below the floor prices, the risk with the plan is that the Treasury will take some time to recoup is £66bn.

As far as the new shareholders are concerned, Mr Williams calculates that if the RBS share price rose to 75p and that of Lloyds to £1.10, then they would make a profit of £520 each.

The Treasury said it welcomed the idea as an ‘interesting contribution’.

Should we all get free bank shares?

Should we all get a piece of RBS and Lloyds?

It looks like a neat scheme, and has been described by the Treasury as an ‘interesting contribution to the debate’ (so perhaps damning with faint phrase, but not at least a “stupid boy, Pike” rejoinder).

Extreme popular capitalism could release bank directors from being answerable either to the irksome government (as owner) or to governance-obsessed investment institutions.

My guess is that the City establishment will view Mr Williams’ proposal to democratise the banks as naive and impractical. Which, given the recent track record of that establishment, some would say is one very good reason why the government should not summarily dismiss the idea of bank shares for all.

A RESPONSE FROM THE CITY …

Aesthetically it all sounds great, but is wholly impractical.

How can so many shareholders contribute in an orderly manner to the affairs of this bank? On this basis, the taxpayer would take for ever to get his money back. Whereas under current management there is a chance in the next few years, provided regulation is not too draconian and taxation does not lead both banks into penury.

Daft though the idea is, it will inevitably receive great support from the public and the media and as the PM likes to shoot from the hip reacting to the mood of the day, who knows he may well give it more than a glancing Giaconda smile of amusement.

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