British banks report profits

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Luke Jovetic
Know Your Money Editor

The Royal Bank of Scotland (RBS) recently rounded off positive news released from each of the UK's four leading banks by reporting a return to profit in the first half of this year.

HSBC, Lloyds Banking Group and Barclays Bank also reported a return to profitability in the first half of 2010.

RBS, which found itself at the centre of the economic crisis two years ago, has revealed it made a pre-tax profit of £1.14 billion between January and the end of June.

The results compare with a profit of £15 million pounds in the first half of 2009 and may suggest better times are ahead for the Edinburgh-based bank, which two years ago made history when it recorded an annual loss of £24.1 billion - the largest ever in British corporate history.

Reports indicated the problems related largely to the ambitious takeover of ABN- Amro, the Dutch bank, in October 2007.

RBS was a major beneficiary in the government's bailout scheme and is still 84-per-cent-owned by the taxpayer.

Good news for the taxpayer?

The government's bailout of the banks cost the taxpayer money and now, some analysts have suggested, could be the time to start getting some of the £37 billion rescue package back.

News of £15 billion profits across the major banks has caused some speculation that the gamble of supporting them during the height of the financial crisis would eventually pay out and help to reduce the UK's massive debt burden.

The Centre for Economics and Business Research (CEBR) released a statement following the news indicating that a sale would result in a profit, rather than a loss, for the taxpayer.

Higher than expected profits for the clearing banks and resulting rises in the share prices of the nationalised banks mean it will yield a £19 billion profit.

And RBS chief executive Stephen Hester has suggested that selling some of its shareholding would be a "win win" situation for the government.

He told The Sun: "It would be a powerful symbol. It will show taxpayers they will get their money back and show the medicine we are taking is working.

"As far as I'm concerned they could start selling tomorrow."

Selling the shares, bought to save RBS in the credit crisis, is down to the government's UK Financial Investments arm.

However, Vince Cable, the secretary of state for business, innovation and skills, told The Independent on Sunday that a sale of the state-owned bank shares would not happen until 2012 at the earliest.

"Obviously the aim is to get maximum value for money, but also to do the timing in such a way that it doesn't interfere with any other government objectives," he said.

Experts seemingly agree with Mr Cable as investment advisor Nick Raynor, at The Share Centre, told Channel 4 News: "Almost certainly, the government should look at selling their shares in the bank in the near future - but not yet. It's still too early to say the banking sector is all hunky dory."

He added the government will make "a nice tidy packet on this one day", which proves it does not take the banking sector long to turn themselves around.

In the next year or 18 months, the government could sell and look good, possibly before an election, he stated.

The CEBR report suggested the government dispose of its stakes in the banks in a "phased sale" over five years.

"Having ripped off the banks' shareholders and got the shares on the cheap, the government is now in healthy profit on the shares after fees are taken into account," it advised.

However, experts have also warned that in terms of the overall recovery of the economy, things remain unclear three years on from the date recognised as the start of the credit crunch - August 9th 2007.

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