Investors are sceptical about a proposal by Britain's deputy prime minister to give every UK voter shares in the country's state-owned banks, saying the plan would be difficult to execute and could be counter-productive.
Deputy Prime Minister Nick Clegg, who heads the Liberal Democrat junior party in the coalition government, said he wanted to create a "people's banking system".
He added he had written to Conservative Finance Minister George Osborne and Chief Secretary to the Treasury Danny Alexander, asking them to look into introducing a "mass share-ownership scheme" as part of the privatisation of bailed out lenders Royal Bank of Scotland and Lloyds .
However, fund managers were sceptical that Clegg's idea would work in practice.
"You can devise a plan like this but I can't see the point of it," said Royal London Asset Management fund manager Jane Coffey.
Coffey said there was a risk that any proceeds for taxpayers' from this type of proposal would be offset by the costs of setting up the transaction.
She added it would be easier for the government to focus on cutting down the country's debt and liabilities in order to increase the wealth of taxpayers', rather than through Clegg's complex bank share give-away scheme.
"It seems to me to be the most expensive way of distributing the shares that one could think of, with the least benefits for taxpayers and the most benefits to the investment banks who will charge the fees on it," she said.
BRITAIN'S BANK BAILOUT BURDEN
Giving the public collective ownership of the two banks could create 46 mln shareholders if every adult in Britain were given shares — three times as many popular shareholders as created by former Prime Minister Margaret Thatcher in privatisations in the 1980s.
Britain pumped 66 bln pounds (US$107.1 bln) into the two banks to rescue them during the global financial crisis, giving the state an 83% stake in RBS and 41% of Lloyds.
The government aims to sell the shares at a profit but faces an estimated 15 bln-pound discount to the sale price because of the size of its stakes, according to the Centre for Policy Studies.
The Centre for Policy Studies said the government could get around the problem of the share overhang if it bypassed the traditional route of a market sale. It would also save as much as 1 bln pounds (US$1.62 bln) in fees for investment banks and other advisers.
"Psychologically it is immensely important that the British public feel they have not just been overlooked and ignored," Clegg told the Financial Times.
The Centre for Policy Studies had already suggested last month that Britain should give away its shares in RBS and Lloyds, saying it would maximise returns for the government by avoiding having to sell such a large volume of shares at a big market discount while also rewarding the public for helping save the banks.
However, RBS and Lloyds shares have continued to trade well below the price at which the state bought into the companies as part of the bail-out.
Britain acquired its shares in RBS at an average price of 49.9 pence, and got its Lloyds holding at an average price of 63.1 pence.
RBS shares were down 3% at 37.44 pence in late morning trade on Thursday, while Lloyds fell 2.7% to 45.74 pence.
Based on those prices, Clegg's plan to give every Briton 1,450 RBS shares and 440 Lloyds shares would mean that an individual UK taxpayer would acquire a bank stakeholding worth 740 pounds.
SVM Asset Management fund manager Colin McLean said people were likely to want to get rid of those RBS and Lloyds shares as soon as possible under the Clegg proposal, rather than hold onto them, and a mass sale could then further destabilise the banks.
"It just doesn't look like a solution," he said.
Another fund manager also said there was a risk that people might look to sell the shares en masse, while many would not know what to do with them.
"I think it's an ill-conceived plan," he said, asking not to be named.
A Treasury spokesperson said it would look at all options but that the question of share giveaways had not yet arisen.
