UK Chancellor of the Exchequer George Osborne said Wednesday that the government is "actively considering" options for selling its stake in Lloyds Banking Group plc (LYG,LLOY.L) and will examine the case for breaking up Royal Bank of Scotland Group plc (RBS,RBS.L) and hiving off its assets into a bad bank.
However, Osborne did not announce a fixed time table or price for the return of these two partly state-owned banks to the private sector.
Delivering his annual Mansion House speech to the banking community, Osborne outlined the government's plan for the two banks. The Chancellor noted that while the economic news has been better in recent months, Britain still needed to secure the recovery.
Osborne said, "Nothing better signals Britain's move from rescue to recovery than the fact that we can start to plan for our exit from government share ownership of our biggest banks."
The Chancellor said that the government is "actively considering options for share sales in Lloyds" and will also "urgently investigate" the case for hiving off the bad assets out of RBS into a bad bank. He added that the government will only sell RBS when it feels that the bank has fully recovered.
The UK government has an 81 percent stake in RBS, which is going ahead with its privatization plan. The bank was rescued by means of a 45 billion pounds bailout in 2008, following its ill-timed purchase of Dutch bank ABN Amro.
Last Thursday, media reports indicated that RBS is planning to cut 2,000 jobs in its investment banking unit, a day after the bank said its chief executive Stephen Hester would step down later this year.
RBS had gone through investigations by U.S. and UK regulators recently, and settled allegations that its employees manipulated key global benchmark interest rates, including the London Interbank Offered Rate or Libor and the Euro Interbank Offered Rate or Euribor.
Lloyds Banking Group, 39 percent owned by the UK government, has been grappling with tough times after its merger with HBOS during the 2008 economic crisis. The government is set to start the process of selling its stake in the lender, expecting to finish the process ahead of the 2015 general elections.
Osborne noted that the first sale of the government's stake in Lloyds is likely to be an institutional one, but for subsequent disposals the government will consider all options, including a retail offering to the general public.
Further, Osborne said that the government will establish a bad bank if it met its three objectives of accelerating the path back to private ownership, delivering benefits to the wider economy, and is in the interests of tax payers.
The Chancellor said that the government will conclude the review of establishing a bad bank and will make a decision this autumn. He also said he has asked the Office of Fair Trading or OFT to review the impact that new challenger banks created by Lloyds and RBS will have on "strengthening competition in small business banking", and to identify what more can be done.
Responding to the publication of the report from the Parliamentary Commission on Banking Standards or Tyrie report on professional standards and culture of the UK banking sector, Osborne said that the Banking Bill currently before Parliament will be amended to ensure the recommendations can be quickly enacted.
LYG closed Wednesday's trading at $3.80, down $0.11 or 2.81 percent on a volume of 2.15 million shares. RBS closed trading at $9.89, down $0.25 or 2.47 percent on a volume of 1.38 million shares.
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