Post Brexit UK Government Halts RBS, Lloyds Stakes Sale

Triggered by economic uncertainties and stock market mayhem post Brexit, the U.K. government has halted plans to sale stakes in Lloyds Banking Group (LON:LLOY) plc (NYSE:LYG) and The Royal Bank of Scotland Group (LON:RBS) plc (TO:RBS) .

The government’s plan to sell $15.65 billion of loans issued by Bradford & Bingley which was also nationalized during the financial crisis, will be held back as well, according to government advisers.

The Treasury which currently has 73% stake in RBS and 9% in Lloyds, lost nearly £8 billion as shares of these U.K.-bailed banks slumped following the EU referendum. Notably, over the last two trading days, RBS’s shares plummeted 30%, closing at 174.30 pence on Monday, while Lloyds plunged 29% closing at 51.15 pence.

A recent release by The Financial Times quoted Mark Garnier, a Conservative MP and a member of Treasury committee, saying, “All the work to repair share prices has been undone in one day. Any major share sale is a non-starter with this uncertainty. Plus we have political uncertainty with the leadership changes.”

In a bid to return Lloyds to full privatization, British Finance Minister George Osborne had planned to sell about £2 billion of Lloyds’ shares this year if the Britons had voted to remain in the European Union.

The British government also initiated the nation’s biggest privatization with the sale of 5.4% stake in RBS last August. The Treasury sold the stake at 330 pence per share, much below the purchase price of 502 pence it had paid while bailing out the bank during the 2008 financial crisis. This move translated to a loss of around £1.1 billion which Osborne defended on grounds of improvement in the broader economy.

Notably, since 2010, the government has recovered over £75 billion of taxpayers’ money through disposal of the assets it had rescued during 2008-09 crisis. However on the heels of economic and political worries sparked by Brexit, the delay in government’s privatization plans indeed gives a huge blow to taxpayers and investors.

Both Lloyds and RBS carry a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the foreign banks include Canadian Imperial Bank of Commerce (TO:CM) and Bank of Montreal (TO:BMO) each sporting a Zacks Rank #1 (Strong Buy).

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