What happens when the bank shares are sold?

B'stard

I don't know much about economics etc, but....

The government has bought lots of shares in the failing banks to stop them from crashing. The public are having to tighten their belts to pay for this share buying. But what happens when the government sells the shares - where will this money go?

Thrugelmir

To repay the national debt.

Loughton_Monkey

No-one has had to tighten their belts. This money came from the 'capital' account (not revenue) and should, eventually, get re-paid in full, with interest, back into the county's 'capital'.

We have to tighten our belts because Brother Brown spent like crazy - mainly on benefits and unnecessary public sector workers - using money we didn't have. He is so brainless he 'missed the point' about so-called 'Keynsian' economics. When we get to a recession, we are supposed to spend money on public works, roads, schools, bridges, infrastructure.....

Not benefits!

teddy_ruckspin

Loughton_Monkey wrote: »

No-one has had to tighten their belts. This money came from the 'capital' account (not revenue) and should, eventually, get re-paid in full, with interest, back into the county's 'capital'.

We have to tighten our belts because Brother Brown spent like crazy - mainly on benefits and unnecessary public sector workers - using money we didn't have. He is so brainless he 'missed the point' about so-called 'Keynsian' economics. When we get to a recession, we are supposed to spend money on public works, roads, schools, bridges, infrastructure.....

Not benefits!

couldn't have said it better myself, bravo!

Thrugelmir

Loughton_Monkey wrote: »

This money came from the 'capital' account (not revenue)

The money was borrowed. NR was funded with around £29 billion to see it through its liquidity problems initially. Likewise a smaller amount at B&B.

As the mortgage books are redeemed then the banks are repaying the Treasury as free cash flow allows.

sabretoothtigger

If we are anything like many other countries, we have no money when you discount the debt from the assets
That only works because they sell future tax revenue and keep estimating it'll rise

Lloyds is not repaying anything directly. It pays no dividends and the cashflows it has are managed according to their own decisions. A spanish guy runs them now, used to be an american.

Actually they may have been lent money behind the scenes in which case they would repay that by refinancing the debt in private market place.

I think they done a fair bit of that which is good because HBOS biggest problem was from 2008 onwards it needed to raise 200bn and Lehmans going broke kinda put people off. Lloyds used to have a AAA rating before buying HBOS
HBOS bought 25 year mortgages with market money only given for a few years, same as BB and NR. Its possible they might still be here otherwise.
I dont think they have taken great losses on housing, only a default does that, the fear is they might still

Anyway this relates to the base value of these Shares government now owns. Debt ranks over shares so share value can be absolute zero.
If government sells shares, the buyers would need to believe the whole company model is working
Right now government cannot sell, nobody believes in Lloyds enough definitely not RBS


The money spent on shares is not a gigantic amount, it would be reused on other investments like an aircraft carrier or whatever.
If this share money never was returned you will likely pay more tax in future and/or they'd be no aircraft carrier which presumably harms the countrys defence/industry

pqrdef

B'stard wrote: »

But what happens when the government sells the shares - where will this money go?

The banks in question are able to function when they ought to be bankrupt only because their debts are in effect temporarily guaranteed by the government, so transferring the liability from the company balance sheet to the public sector.

The shares can only become better than worthless if the government finds some sleight of hand to make that transfer permanent, so the money poured down the drain by HBOS and RBS is permanently absorbed into the national debt.

The money raised from selling the shares will partially offset that. No doubt it will be presented differently.

Thrugelmir

sabretoothtigger wrote: »

Lloyds is not repaying anything directly. It pays no dividends and the cashflows it has are managed according to their own decisions. A spanish guy runs them now, used to be an american.

Actually they may have been lent money behind the scenes in which case they would repay that by refinancing the debt in private market place.

Lloyds was funded under the SLS and SGS by the Treasury.

Under the SLS (Special Liquidity Scheme) Lloyds was lent around £185 billion. Last figures I recall seeing Lloyds had repaid £65 billion of the advance. The scheme expires January 2012. There will be no extension of the scheme. So Lloyds will either have to repay in full or fund from other sources. At the very least this could mean a rise in lending rates as the cost of funding will most certainly be higher.

Kohoutek

Thrugelmir wrote: »

The money was borrowed.

None of the funds from the "Special Liquidity Scheme" was borrowed in the sense of borrowing from external sources, it was simply created as treasury bills as you can see below. It was "borrowed" from one part of government (the DMO) by another part of government (the BoE).

http://www.statistics.gov.uk/articles/nojournal/Financial-crisis.pdf page 80

Overview of the Scheme

The scheme can be divided into three main stages. In the first, the government issues the treasury bills and then lends them to the Bank of England. In the second stage the central bank exchanges them with participating banks' assets, charging a fee for doing so. In the third stage the participating banks are now the legal owner of sufficient quality assets to use them as collateral to borrow against in the markets, the intention being to allow these markets to return to action.

Although the issuance will be at market rates, the treasury bills are not issued directly to the market. The Debt Management Office loans them to the central bank in a stock-lending arrangement.

Thrugelmir

Kohoutek wrote: »

None of the funds from the "Special Liquidity Scheme" was borrowed in the sense of borrowing from external sources, it was simply created as treasury bills as you can see below. It was "borrowed" from one part of government (the DMO) by another part of government (the BoE).

My comment to borrowed refers to the rump of NR and B&B which now resides in NRAM.

As retail customer deposits sit in the new Northern Rock.

sabretoothtigger

Under the SLS (Special Liquidity Scheme) Lloyds was lent around £185 billion. Last figures I recall seeing Lloyds had repaid £65

Fair enough, I thought they had repaid and refinanced that already. Not great

They need to get secure finance outside government asap