The Great Debate UK

How will the privatisation of RBS and Lloyds affect gilt supply?

–Sam Hill is UK Fixed Income Strategist at RBC Capital Markets. The opinions expressed are his own.–

The return of RBS and Lloyds to the private sector is moving up the agenda but as the UK government prepares to set out the strategy for privatisation, the spotlight will, once again, fall on the gilt market and the public finances.

Equity injections approaching £70bn at the nadir of the financial crisis may have provided the banks with a lifeline, but the imprint on the UK’s public finances remains severe. Along with restructuring loans and compensating depositors for failures at other domestic and foreign financial institutions (e.g. Bradford and Bingley, Northern Rock, the Icelandic banks), recapitalising these banks required the government to turn to the gilt market for financing. In financial years 2008-09 and 2009-10 cash totalling £120bn was raised solely for these interventions. This was on top of the £240bn cash requirement needed to plug the rest of the budget deficit.

It was always intended that RBS and Lloyds should only have a temporary period of public ownership but the share prices have not recovered sufficiently to allow the government to fully break even on its investment. On examination though, £13.8bn of the cash raised for supporting Lloyds and RBS was recorded at the time as a permanent hit to the public finances, largely reflecting the loss on buying some shares above the prevailing market level, and should be deemed irreversible. The government therefore has the opportunity to stick to the break-even principle, by targeting privatisation proceeds sufficient to recover the portion of the intervention recorded as temporary. That amounts to £55.1bn, or a 61 pence target for Lloyds shares and 410 pence for RBS.

from The Great Debate:

Bradley Manning and the real war on leaks


Army Private First Class Bradley Manning in handcuffs for his motion hearing in Fort Meade in Maryland June 6, 2012. REUTERS/Jose Luis Magana

The most significant dispute over leaks this week is not in Washington, where Attorney General Eric Holder is under fire for the searches of journalists' files. It's 40 miles north in Fort Meade, Maryland, where the trial of Army Private First Class Bradley Manning begins Monday.

Is a low corporate tax rate really in Ireland’s benefit?

–Kathleen Brooks is research director at The opinions expressed are her own.–

The tax affairs of Apple and Google have brought attention onto Ireland for all the wrong reasons of late. Ireland’s reputation has undeniably been dragged through the mud as the corporate tax affairs of some of the world’s largest companies come under scrutiny in Westminster and Capitol Hill.

from David Rohde:

Prosperity without power


A woman walking near the headquarters (L) of the Federal Security Service, in central Moscow, May 14, 2013. REUTERS/Maxim Shemetov

In Moscow, they are “non-Soviet Russians.” In New Delhi, they are a “political Goliath” that may soon awake. In Beijing and São Paolo, they are lawyers and other professionals who complain about glacial government bureaucracies and endemic graft.

Thanks, Greece

–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

The euro zone crisis has been a piece of luck for Britain. Imagine what would have happened without it.

from The Great Debate:

For Russia, Syria is not in the Middle East


Russian President Vladimir Putin meets with (clockwise, starting in top left.) U.S. Secretary of State John Kerry, British Prime Minister David Cameron, next Israeli Prime Minister Benjamin Netanyahu and U.N. Secretary-General Ban Ki-moon. REUTERS/FILES

A string of leaders and senior emissaries, seeking to prevent further escalation of the Syria crisis, has headed to Moscow recently to meet with Russian President Vladimir Putin. First, U.S. Secretary of State John Kerry, then British Prime Minister David Cameron, next Israeli Prime Minister Benjamin Netanyahu and now, most recently, U.N. Secretary-General Ban Ki-moon These leaders see Russia as the key to resolving the Syria quandary.

from Nicholas Wapshott:

Austerity is a moral issue


Security worker opens the door of a government job center as people wait to enter in Marbella, Spain, December 2, 2011. REUTERS/Jon Nazca

In the nearly five years since the worst financial crash since the Great Depression, the remedy for the world’s economic doldrums has swung from full-on Keynesianism to unforgiving austerity and back.

from The Great Debate:

‘Reset’ on Iran now


Iran's chief nuclear negotiator Saeed Jalili (C) arrives at the Iranian Consulate before his meeting with European Union foreign policy chief Catherine Ashton in Istanbul May 15, 2013. REUTERS/Osman Orsal

On Wednesday, European Union foreign policy chief Catherine Ashton and Iran's chief negotiator, Saeed Jalili, met one on one for their regularly scheduled diplomatic dance over Iran’s nuclear program – this time in Istanbul. A solution is about as likely to materialize from these discussions as a slow waltz between them.  Indeed, the two sides in Istanbul are reported to remain far apart.

Don’t just blame oil traders for the manipulation of oil prices

–Kathleen Brooks is research director at The opinions expressed are her own.–

The oil market is about to face one of the largest probes in years, following the EU announcing that it is investigating some major players like Shell and BP for price fixing. The probe concerns the way that large oil companies submit prices to Platts, the independent oil pricing service, which publishes prices for oil benchmarks like Brent.

from The Great Debate:

Impressions of a Pakistan election monitor


Voters at a polling station on the outskirts of Islamabad May 11, 2013. REUTERS/Zohra Bensemra Pakistan’s national and regional elections Saturday marked the first peaceful transition from one civilian government to another since the country’s founding in 1947.

As expected, Nawaz Sharif’s Pakistan Muslim League - Nawaz (PML-N) party, which held power several times in the 1990s, won a plurality of the National Assembly seats, and is likely to form a government.