RBS or Lloyds break-up 'will lose value for taxpayers'

The man in charge of the taxpayers' shareholdings in high street banks today warned that any break-up of Royal Bank of Scotland or Lloyds would damage their value.

"There would likely be a diminution in value," Sir David Cooksey, chairman of UK Financial Investments which looks after the taxpayers' £67 billion stake in the banks, told MPs on the Treasury Select Committee.

His chief executive Robin Budenberg said UKFI had discussed the possible break-up of the banks with Treasury officials.

This is one of the proposals that is being looked at by the Independent Commission on Banking and Budenberg said he thought it unlikely but not impossible that either the 83% stake in Royal Bank of Scotland or 41% stake in Lloyds would be sold before it reports in September.

The sale process could take several years and could be done in one of three ways; a broad sale to the public, a sale to institutions only or a sale via structured transactions.

However, the sale of Northern Rock could come much sooner, Budenberg said, as the Government is keen to boost competition in the banking sector.

Budenberg also said bonuses for chief executives and key staff were vital in keeping top talent and to maintain value at Lloyds and RBS.

He told the committee: "I understand that it is very difficult to justify the sort of bonuses paid at these banks.

"But if we want to sell these shares, we have to make sure the banks are able to retain top talent."

Budenberg gave no details on the current bonus negotiations, but said: "We believe it is essential to maintain high quality management at these banks. They will effectively determine the outcome of value at the banks."

UKFI also believes that once it has completed the run-off of the rump of Bradford & Bingley's £40 billion mortgage book the taxpayer could emerge with a profit of £1 billion.

The taxpayer is currently sitting on a paper loss of around £9 billion for its RBS and Lloyds shares.