2 Learning lessons from the sale |
7. The NAO reported that the sale was handled well
by UKFI but still lost the taxpayer an amount currently estimated
at £469 million.
The £1.4 billion taxpayer shares were sold for proceeds which
are currently estimated at between £886 million and £976
million. The proceeds include cash of £747 million received
on 1 January 2012, further cash of £73 million received in
July 2012, debt in Virgin Money worth £66 million to £117
million, and a clawback clause valued at up to £39 million.
The midpoint of this
range values the sale at £931 million and implies a loss
to the taxpayer of £469 million.
8. There was little competition to buy Northern Rock
plc. UKFI was fortunate that Virgin Money had a strategic interest
in immediately purchasing a small retail banking operation in
2011. Only two bids
were available at any one time during the sales process,
and had the sale been delayed it is not certain that any more
would have been received. Indeed, current market conditions are
less favourable than at the end of 2011.
9. Whilst the timing of the sale and the lack of
strong competition are important factors, a much larger portion
of the mortgage assets remain in public ownership, and it is the
handling of these assets which determines the overall cost to
the taxpayer. UKFI
expects to recover the loss on the sale and all the taxpayer support
provided to Northern Rock from the profitable redemption of mortgages
in NRAM. However,
once risk and the time value of money are considered, the economic
loss to the taxpayer of the intervention is currently estimated
by the NAO to be £2 billion. This figure is the net present
cost to the taxpayer of all the support provided, including the
loss on the sale of Northern Rock plc.
10. But the final reckoning will depend on how well
UKFI manages the wind-down of NRAM. NRAM had £38.9 billion
of mortgage and other lending assets remaining as at June 2012.
UKFI may have opportunities to increase the return, for example
by selling additional mortgages.
It is in the taxpayers' interest that it manages the run-down
for value, not necessarily just looking for a quick exit.
11. Since the sale, UKFI has shrunk further. The
head of the wholly-owned section has now left and not been replaced,
and the officer now responsible for oversight of NRAM also has
the much larger task of managing the taxpayer shareholding in
RBS and Lloyds. In
effect, UKFI is placing greater reliance on the management of
UK Asset Resolution, the holding company established in October
2010, which combines NRAM and the remains of Bradford & Bingley.
12. We heard that the Treasury has started building
up its skills. It
has set up UKFI with a small cohort of staff who have commercial
skills and it has added an additional Second Permanent Secretary
to strengthen senior management at the Treasury.
It has also conducted and published a review of its skills,
the White Review, in response to our previous recommendations.
The Treasury committed to updating us on its response to the review
by June 2013.
13. The sale of Northern Rock plc is not directly
comparable to other potential sales, but lessons may read across.
The taxpayer has invested £66 billion in RBS and Lloyds shares
and it seems inevitable that their "temporary public ownership"
will last for some time if getting value for our investment remains
the most important objective for Government. We were not convinced
that the taxpayer would be making a profit on these banks any
14. The Treasury has hived off the responsibility
for managing the shares to UKFI, but has other objectives for
its shares in banks.
In 2007, we warned that "Reconciling public policy with shareholder
value objectives can be difficult because the cost of meeting
the former can have a negative impact on the latter".
The Treasury told us that UKFI would continue to focus on value
for money, having regard to financial stability and competition
while the Treasury took a broader view in line with its role as
the nation's economics and finance ministry.
16 C&AG's Report, para 15 Back
C&AG's Report, para 3.10 and UKFI Press Release, http://www.ukfi.co.uk/releases/UKFI%20Press%20Release%202012073_FINAL.pdf Back
Q 66 Back
Q 68; C&AG's Report, paras 3.2-3.7 Back
Q 66; C&AG's Report, para 3.15 Back
Q 4 Back
C&AG's Report, paras 3.22-3.24 Back
Q 96; C&AG's Report, para 3.25, Figure 17 Back
UK Asset Resolution, Interim results, June 2012, http://www.ukar.co.uk/~/media/Files/U/Ukar-V2/Attachments/press-releases/2012-07-27-report.pdf Back
Qq 45, 53 Back
Q 60 Back
Q 57-61 Back
Q 60, C&AG's Report, para 3.22 Back
Qq 17, 63 Back
Q 18, 62, 63 Back
Review of HM Treasury's management response to the financial
crisis, March 2012, http://www.hm-treasury.gov.uk/d/review_fincrisis_response_290312.pdf Back
Q 64 Back
The Certificate and Report of the Comptroller and Auditor General
on HM Treasury Resource Accounts 2011-12, (part of HM Treasury,
Annual Report an d Accounts 2011-12, HC 46 July 2012),Figure
Qq 27, 37, 55, 69, 85 Back
Q 27 Back
Committee of Public Accounts, Forty-Second Report of Session 2006-07,
The Shareholder Executive and Public Sector Businesses, HC
409, para 1. Back
Qq 79-87 Back