In 2008, the UK government bailed out a number of financial institutions to prevent them from collapsing. What is great news for the Lloyds group is the government is looking to reduce the amount of shares they currently own.
This is because the price for the shares is at a higher point than what they paid when the bailout occurred.
This is great news for the shareholders who have stuck by them; there have been no dividend payments since this date, but with this current reduction in the share the UK government owns, could mean that the dividend payments return later in the year.
This news is greatly welcomed around the world, Lloyds is after all a bank that is globally recognised. It shows the financial recovery that is continuing in the global markets. This will reduce the amount of shares that the UK government has on the Lloyd’s banking group. The amount of shares being sold is not the full amount still being held by the government, but it will release some much needed capital back into the hands of the government. It is predicted that the amount raised for the tax payer is going to be in the region of £105 million.
This is still a long way off from the £20 billion that was pumped into the different banks during this difficult time.
It is not likely, for the foreseeable future, that the money that was invested in RBS will be returned; they are still unable to offer the value that is needed on the share price.
The reason for the financial collapse
There is one main reason that people are looking at which caused the financial collapse of many banks around the world. The subprime mortgages were being defaulted on. These debts had already been sold to the different banks around the world and when the collapse came, the global effect that the market had was bigger than anyone had ever envisaged.
The mortgages were being given to people that couldn’t afford the repayments and sometimes the mortgages were greater than the value of the property.
Many people blame the US for this crisis, but the mortgage companies around the world also acted in similar fashion. This is why the reduction in the amount of new mortgages that are created has reduced; because banks had to reduce the amount of “loan to value” they were offering customers.
Therefore, the selling of some of the shares that are held by the UK government in one of the banks that they helped is great news. It demonstrates to the world that the continued growth and development has now started to happen. It gives the global financial markets the boost it needs in these difficult times, it means there is a glimmer of hope that the difficult times might be ending.