Banks will 'take years' to pay back taxpayers' money

UK Financial Investments (UKFI) revealed that every household in Britain has invested more than £3000 in Lloyds Banking Group and Royal Bank of Scotland (RBS) through the part-nationalisation of the banks.

Chief executive John Kingman said that taxpayers "rightly expect to get their money back" but warned it will take "several years" and UKFI should be seen as a "long-term shareholder".

Acting chairman Glen Moreno, who is working for free, added: "Our task of returning these investments to the private sector is challenging. The amounts involved are very large, and a successful disposal of our holdings will require professionalism and patience."

He added: "Make no mistake: this ain't over yet. Banks still face considerable losses from past excesses and the current recession.

"There is a huge amount of work to be done in our banks. Our long-term task is to maximise value for the taxpayer. This will take time."

The warning came as it emerged that new RBS chief executive Stephen Hester will face tougher performance targets next year following outrage over his potential pay packet of nearly £10 billion.

The Government last year took a 70% stake in RBS at an average 50.5p a share and a 43% stake in Lloyds at 122.6p to save the banks from collapse.

The shares have since plummeted and were down again today — Lloyds by 1.27p to 62.03p and RBS by 0.21p to 35.45p — leaving the taxpayer sitting on losses of £13.2 billion.

This compares with a deficit of £10.9 billion at the end of June and £18.1 billion in early February, according to the UKFI report and accounts published today.

The weakness of the shares, and the sheer size of the holding, underlined just how long it will take for the UKFI to sell the Government's stake back to private investors.

"Given the size of our holdings and assuming that there might not be a strategic buyer for our stakes in these banks, we might expect to undertake several transactions in each bank's shares and that these will take place over a sustained period," said Kingman, who is on £143,000 a year.

The Government's stakes in RBS and Lloyds look set to soar to above 80% and 60% respectively when the Asset Protection Scheme sets in. The two banks have insured £585 billion of toxic assets in the Treasury scheme which could push the investment made by the taxpayer to over £60 billion, making it even harder to sell the shares at a profit.

City analysts expect Lloyds to write down another £13 billion of bad debts when it reports results for the first half of the year next month.