RBS and Lloyds sale on hold while £8bn falls of share price

The government has scrapped plans to sell its shares in the Royal Bank of Scotland (RBS) and Lloyds Banking Group on Tuesday due to Brexit, while the result wiped out almost £8bn on the banks’ share price on Monday.

Shares in RBS and Lloyds have plummeted since the European Referendum on Thursday with their market capitalisation combined reducing to £24bn.

The loss of a combined £8bn is the equivalent to about £255 for each of the 33.6m people who voted in the referendum, according to the Financial Times.

Market upheaval and economic uncertainty since Brexit has forced Treasury policymakers to shelve plans to sell the government’s stock in the two banks, Reuters reported, citing sources.

The Treasury initially planned to reduce further exposure to the banks by raising £9bn via sales of stock to fund managers and a discounted offer to the public.

Amid the financial crisis in 2008, RBS received a £45bn bailout and the government currently owns 73% of the bank. Lloyds received a bailout of £20bn and the government owns 9%. RBS shares were initially bought by the state at 502p and Lloyds at 73.6p to bail them out.

Reportedly, the programme to drip feed Lloyds' shares into the market is to expire on 30 June after six months and there are no plans to prolong it.

The Treasury is said to be expecting a lengthy period of market volatility which it said would make it difficult to see when a sale would achieve value for taxpayers.

According to the Office for Budget Responsibility taxpayers have to pay out £200m every month in additional interest of the debt used by the holdings at the height of the 2008 financial crisis, for every month the governments holds on to the stakes.

There are doubts about a plan to sell a $15.65bn loan portfolio held by mortgage bank Bradford & Bingley, which was also nationalised in 2008 when it received a £8.55bn bailout. The asset sale would have been the largest by a government in Europe.

A £2bn retail share sale in Lloyds was due to happen this year, which was part of Chancellor George Osborne’s plan to re-privatise the bank.

He also planned to sell RBS shares worth £5.4bn by the end of 2016. In August 2015 the chancellor started RBS’ re-privatisation when he sold a 5.2% stake at 330p but it was a £1.1bn loss to the tax payer.

RBS shares were up 3.16% to 179.80p at 1232 BST and Lloyds shares were up 6.43% to 54.45 at 1233 BST.