What you stand to lose from the bailed-out banks

The Royal Bank of Scotland announced that it is paying out £1.3bn in bonuses months after being bailed out by the taxpayer. How much do we all stand to lose from bailed-out banks and when will we get our money back?

This week, Royal Bank of Scotland, the bank owned mostly by us, the taxpayers, reported a loss of £3.6bn in 2009 – a combined loss over two years of £28bn. Also, in a real poke in the eye for its owners (us, the taxpayers) it announced £1.3bn in bonuses to its investment bank division. That’s one thousand three hundred million pounds in bonuses, from a bank bailed out with taxpayers’ money!

Lloyds Banking Group, which is 41% owned by the taxpayer, has also announced multi-billion pound losses today, following a massive writedown in the value of assets it took on from HBOS. Lloyds has lost £6.3 billion in total, but is expected to pay out around £200 million in bonuses to its staff.

The only positive news is that the losses at both banks were smaller than expected, chief ????executives of both Lloyds and the Royal Bank of Scotland have waived their annual bonuses this year.??

The news follows a decision by?? the Government ?to remove? the guarantee on 100% of Northern Rock’s deposits? in months.

What does all this all mean? Let’s look at the bigger picture in context with the total cost of supporting banks and fighting the economic crisis that they have caused. How much of our money have they required to fix their problems and the related problems in the economy? Plus, how much will they pay back – and when?

Northern Rock not the only bank under guarantee

Northern Rock savers have had a Government-backed guarantee on 100% of deposits, but really all banks have been receiving the same protection. A government can’t say its protecting some savers completely and not others, and many of the banks have officially been deemed too big too fail.

In addition, all of the banks at some stage in the past few years have taken advantage of billions in emergency loans. The real biggie though is that the government had been guaranteeing about £600bn against the prospect of really stupid loans failing, and against the possibility that the banks fall short of cash.?

The total protection has now come down and is perhaps less than half of its peak, but pretty much all we’ve received for this huge insurance so far is £2.5bn from Lloyds (which has now left the protection scheme) and £700m from Royal Bank of Scotland.

We didn’t just require fees for this protection scheme though. We also insisted that these banks do a few things, like start lending more money – a legal obligation which they have so far failed to keep. We also said they must sell some branches and subsidiaries. This might make them a little safer, but it doesn’t make the taxpayer richer: it just means our banks (we own them, after all) have some extra cash and a few less profit-making assets.

What else have we got out of this?

So we’ve taken a few fees, but what else? We also own about £17bn in Royal Bank of Scotland shares (according to recent stock-market prices) and about £15bn in Lloyds. But we paid around £46bn for RBS shares alone, and around £20bn for Lloyds (if we include preference shares). That means our stakes are worth maybe half what we’ve paid. That’s a big loss we need to make up.

On top of this, we have injected an extraordinary £87bn into Northern Rock. The government is promising not to rush a sale of the Rock so it gets a good price, but governments don’t have a good history of doing deals with the private sector. (Think of all the privatisations, and of PFI, and of the outrageous support for such things as British Steel, Concorde and the Millennium Dome.) What’s more, us taxpayers have the privelege of keeping the parts of Northern Rock that stink and are most likely to cause losses. Sorry, cause us losses.

So how much will we lose?

Making a profit on this bank-caused crisis and recession is far-fetched. The total losses will largely depend on what price the government gets when it sells all its shares in the banks we own, and the price of the bad assets that its protecting too. The government itself has suggested losses of £20bn to £50bn, which means it’ll likely be more.

Yet on top of that, the government’s estimate hasn’t taken into account the cost to the nation of quantitative easing. Just as we won’t get much return on our investment for years, the total cost of this £200bn programme won’t be known till perhaps the next general election. As for the wider costs to consumers and workers in terms of both money and suffering that this bank-instigated crisis will cause, we may not know that till after the election after that.

It’s worth repeating some words from Mervyn King, Governer of the Bank of England, from late last year: "The sheer scale of support to the banking sector is breathtaking."

And, still, I’ve said almost nothing about the £1.3bn in Royal Bank of Scotland bonuses announced this week. Perhaps with all these even bigger numbers around it won’t be too hard for the bank to sweep it under the carpet.