New Year Non-News

When there is no news, create some.....

I couldn't help noticing this article in the Guardian. "Taxpayers Left With £10bn Loss On RBS Stake", the headline screams.

Here's the story:
Taxpayers were left with a £10bn loss on their stake in Royal Bank of Scotland shares at the end of 2014.
The 79% shareholding in RBS was bought at an average of 502p a share, well above the 394p at which the shares ended the year.

Shocking. How dare the Government sell OUR shares in RBS at such a loss! That's worse even than Royal Mail. This Government goes from bad to worse, doesn't it?

And then Ms. Treanor moves briskly on to discussing Lloyds, where the taxpayer is actually making a profit:
In contrast, shares in Lloyds Banking Group ended at 75.8p, above the average price of 73.6p at which the government bailed out the bank six years ago. The taxpayer owns 24% of the bank but that stake could fall to 20% in the next six months under a plan announced by George Osborne three weeks ago to sell off further shares.
Wait, wait. You mean these shares haven't actually been sold at all? All that has happened is that 2014 has ended?

Yes, that's exactly what Ms. Treanor means. The Government hasn't sold any more of its stake in Lloyds - although it is planning to, as she reports, though it has set a floor on the prospective sale price:
The chancellor, who has backed away from offering the stock to retail investors, has committed not to sell off any of the remaining shares for less than 73.6p each.  
And it hasn't sold ANY of its stake in RBS. That shocking £10bn loss is UNREALISED. It does not exist. No-one has lost any money. None whatsoever. Nil. Nix. Nor will they, unless the Government decides to sell its stake at a loss - which given there is an election looming is pure fantasy.

Indeed the £10bn is actually a considerable improvement on the unrealised loss at the end of 2013, reflecting a better year for RBS. Unfortunately the same can't be said for Lloyds:
Although higher than the bailout price, Lloyds shares ended the year at a lower level than at the end of 2013, when they traded at 78.8p, while RBS shares are higher than the 338p at which they ended 2013 – representing a £14.5bn loss for taxpayers on the bailout.
And this raises a question. Why is Ms. Treanor reporting what is actually a substantial improvement for RBS as if it is another shocking loss, when the real story here is the poor performance of Lloyds?

I know why. I was attracted by the headline, wasn't I? It's clickbait. The Guardian should be ashamed of itself.


  1. I had exactly the same reaction as you. But then I reflected that one thing I have learned during the financial crisis is the people prefer sensational stories to mundane ones, and simple stories over complex ones.

    Oh, and you are not a newspaper's customer; its advertisers are. As you say, click-bait; the newspapers' real job is delivering eyeballs to adverts.

    1. I've actually had one of my Forbes headlines changed by my editor because she thought it was too clickbaity-y. I would never get away with anything as blatant as this. Seems the Guardian does not have such strict standards.

  2. The idea that a loss isn't a loss unless it’s REALISED is debatable. How do department stores treat stock in their year end accounts which has been bought at £X/unit and which fails to sell, and which by general consensus is worth £0.5X/unit? If they are going to present a “true and fair view” to the world, they need to value that stock at the lesser amount.

    But maybe they’d be allowed to value the stock at the higher amount under UK law: I’m not sure.

    1. Really this is the whole question of mark-to-market accounting. Securities that are "available for sale" must be marked to market and any gains and losses taken to profit & loss in year-end accounts. Your department store would have to do the same with its unsold stock. However, the Government is not in the business of securities trading and has not announced that RBS shares are available for sale. It would be reasonable to suppose that it would not sell these shares until the price has risen to at least its original value, especially since it has already set a zero-loss floor on Lloyds shares. There is therefore no reason to mark its holdings of RBS shares to market or recognise that loss in the profit & loss account. The picture is less clear for Lloyds shares: since it has announced its intention to sell Lloyds shares, it might be appropriate for these to be marked to market.

    2. Maybe you don't need mark-to-market to the spot price here, but the principle is generally sound, and perhaps a smoothed price like a moving average would do.

      Generally just hoping that something that currently sells for S today will one day be worth C because C is your cost basis is just illogical and mathematically unsound (PnL anchoring). Indeed you will note that when S > C people suddenly forget C and happily switch to mark-to-market...

      This is pretty bad educationally: by doing something innumerate the government promotes innumeracy, as if there was not enough of that floating around.

      The government, like anybody holding any asset, should sell their stakes when they think they are at fair value and that continued government ownership won't add value going forward. If they think it's worth markedly more than the spot price, why don't they buy some more to make more money for the taxpayer? They can borrow pretty cheaply at the moment!

  3. What does it matter. ?
    the British corporate system of control has imploded.
    So as to cover up the excrement we are pushed into the abyss.......yet again
    How many times is it now?

    Your companies given letters of the marque are biblical curses on humanity.


  5. This is my first time visit here. From the tons of comments on your articles,I guess I am not only one having all the enjoyment right here!


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