State-funded banks post mammoth losses

RBS has reported annual losses of £2 billion for 2011, nearly double the deficit the state-funded bank posted the previous year.

It is yet more gloomy news for the crisis-hit bank, which is 80 per cent owned by the taxpayer after being bailed-out by the government at the height of the financial crisis in 2008.

And the City was expecting Lloyds, which is also propped up by public funds, to report net losses £3.5 billion as both banks continue to struggle with the aftermath of the Eurozone crisis and the massive payouts they are liable for following the PPI mis-selling scandal.

The value of the taxpayer’s stake in two of Britain’s largest banks has almost halved since the Government pumped in £65.5 billion to prevent both from collapsing, plummeting in value to £36 billion after yet more.

Despite the scale of the negative results, some analysts are claiming the figures from RBS contain cause for optimism, pointing to the fact that the bank’s retail and commercial division has posted profits of £4 billion, up four per cent on last year.

The company’s share price has also increased some 40 per cent since the beginning of January, adding around £8 billion to their value.

But critics argue that the rays of sunshine cannot disguise the fact that the public purse is still along way away from recouping anything like its original investment, with the possibility of selling the government’s stake at a loss now being mooted by some.

Shares in RBS are currently worth just 28p, meaning the taxpayers’ 80 per cent stake in the bank is worth just £26 billion, compared to the £45.5 billion invested.

Lloyds’ shares are trading at around 35p, nearly half the value the government needs to break even on the £20 billion it pumped into the ailing bank.

The losses are likely to heap further pressure on top executives at both banks, who have come in for stinging criticism in recent weeks over the size of the salaries and bonuses they are commanding, despite the depth of the deficits they are still facing four years after they were propped up by public funds.

RBS chief executive Stephen Hester recently waived his £1 million bonus in the face of scathing public pressure, but will still pick up a £1.2 million salary and is expected to receive over half a million pounds from a share windfall. Despite the massive losses, the bank still paid out three quarters of a billion pounds in bonuses to its staff last year.

Antonio Horta-Osoria, the new chief executive of Lloyds, will receive payments amounting to nearly £3.5 million. He, too, waived his bonus this year.

Hester this week hit back at the criticism, saying he believed RBS was on course to turn performance around within the five years he set himself when he took the job, and that the intensity of the media’s scrutiny of the business as well as political interference risked hindering his efforts.