Do the state owned UK banks deliver value to their shareholders?

UK vice chancellor has accepted the bonus imbursement of the CEO of Royal Bank of Scotland (RBS) as a sensible payment. Even though the validity of this could be questioned by the UK government since it owns 82% of the capital of RBS, Prime Minister David Cameron has refused to take such action stating it would cause a political influence in to the bank’s operations. The government’s argument on the issue is the best way to get back the money is to pretend in a way it does not own the bank.

However the UK government decision on this could be questioned whether it makes use of its authority to deliver the value to the actual shareholders of RBS who are the tax payers. According to the corporate agency theory the management of the state owned banks could act in their own interests overlooking the ultimate corporate objective which is to deliver value to its shareholders. As a responsible party it’s the obligation of the UK government to take necessary controls with the use of its power in order to protect the value to the tax payers who are the actual residual risk takers who are entitled to lowest level of power.

During the economic downturn in 2008 the UK government took over the ownership of number of banks including RBS, Lloyds TSB, Northern Rock, HBOS, Bingley and Bradford and established UK financial investment (UKFI) to manage the stakes in the acquired banks. They have recruited the experts from private sectors with aim of maximizing the return to the shareholders. The prime objective of UKFI is to deliver and protect the value to the tax payer. But the viability of this objective is arguable with its decision undertook to sell off the Northern Rock stakes to the Virgin group last year. My opinion is the UK government should play a more stronger role in banking sector with the use of its authority and more established corporate governance practices.