When Is Profit Not Profit?

The Chancellor has given the green light to sell 6% of Lloyds TSB (we’ll still have another 34%) bringing in £3.2 billion. This represents a cash profit of £61 million. So it looks like we are going to get a positive return on the funds that we used to bail out Lloyds TSB.

 

Or are we?

 

Oh, come on. You know the rules by now……don’t be blinded by the lights. Here’s the reality……

 

In real terms, there is no real profit on the deal, after adjustments are made for the cost of locking up all those billions of pounds in shares that didn't pay a dividend for all those years.

 

The simple headline is this……we have given up the use of £3.2 billion of public money for 4 years and in return have received a total return of 1.9%. However, take out the negative effects of inflation (at around 14% for the 4 year period) and deduct the money that could have been made elsewhere with £3.2 billion (the ‘opportunity cost’)……what does that leave us with……a big fat loss.

 

Not too many commentators being vocal on the 20% + loss. Not too many commentators worth their salt me thinks.

 

So there you have it……plain and simple.

 

Don’t be dizzied by the spin.