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View the article online at http://citywire.co.uk/wealth-manager/article/a426930

Taxpayer to make £27 billion profit from bank bailouts

by Deborah Hyde on Aug 31, 2010 at 09:02

Taxpayer to make £27 billion profit from bank bailouts

The government could make a profit of as much as £27 billion from the bailed out banks Lloyds and RBS over the next five years, according to new analysis.

Trade magazine The Banker said the taxpayer could make a £19 billion return on its investment as share prices advance, £2 billion in fees for guaranteeing bank bonds, £5 billion from fees for the Asset Protection Scheme (APS) and £1 billion in loan fees.

The accuracy of the forecast depends on when the government decides to sell and on the pace of economic growth but the magazine's editor Brian Caplen said the outlook is strong 'even if you take a fairly conservative view of the share prices.'

If correct the profit would be enough to pay for all primary school education for a year according to one report but would also play a key role in helping the government to cut back its debt to 1.1% of GDP by 2015-16 from the current level of over 60% as promised in chancellor George Osborne's first budget.

Andrew Garthwaite, a leading strategist at Credit Suisse, said there are good reasons to believe the UK banks will pay rich rewards for all investors, including the government.

He believes the banks are currently undervalued, a second downturn in the economy is less likely than feared and points out UK banks can easily boost profits by charging more for loans.

Garthwaite also points out that banking regulation has been watered down and the cost of funding is likely to fall further boosting profits over the coming years.

'We believe risks are receding, opportunities arise. We view the current market uncertainties as an opportunity to reinforce holdings in the banks,' he said.

His top picks are Lloyds and HSBC.

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