• UK Financial Investments says recovering taxpayers’ investment will be a challenge
• Fall in government stake is £6.2bn for Lloyds and £4.7bn for RBS

Bank share price performance (pdf)

The government admitted this morning that it was sitting on a loss of almost £11bn following the partial nationalisation of Royal Bank of Scotland and Lloyds Banking Group.

UK Financial Investments (UKFI), the body that manages the taxpayers’ stakes in the two banks, said this morning that recovering the taxpayers’ investment would be “challenging”.

“Every UK household will have more than £3,000 invested in shares in RBS and Lloyds,” said John Kingman, the UKFI chief executive.

The paper losses have been incurred because RBS and Lloyds shares are trading well below the value at which the government bought into the banks. The details emerged as UKFI set out its strategy to maximise the value of its investments for the taxpayer and to eventually return the banks as strengthened institutions to full private ownership.

UKFI said it would not set any fixed timetable for disposing of the shares and expected to undertake a number of capital markets transactions over a sustained period.

“Our investee banks face significant legacy losses and the inevitable effects of the recession. Nevertheless, we believe they now have the capital resources to weather these difficulties and to emerge from the current environment with their strong franchises and profitability intact,” UKFI said.

According to the report, the Lloyds stake is worth £6.2bn less than the taxpayer paid for it, while the RBS stake is worth £4.7bn less.

The taxpayer bought into Lloyds at an average of 121p a share and RBS at 51p, but shares are trading below those levels – Lloyds at 62p and RBS at 35p – making any sale before the next general election unlikely.

Today’s annual report is a rare opportunity to hear from UKFI and the City will be examining its report closely to look for any guidance on whether any shares will be sold soon.

The body is still being run by a temporary chairman, Glen Moreno, who stepped in six months ago after Sir Philip Hampton was poached to chair RBS.

In February, the chancellor, Alistair Darling, said he expected to make a decision on a permanent replacement “in the very near future”, but City sources believe the government is struggling to find a permanent replacement for Hampton.

Moreno ran into controversy because of his links to Liechtenstein Global Trust (LGT), a private bank accused of aiding tax evasion, and is not thought to have applied for the full-time position. Kingman is a civil servant, elevated from the Treasury to take on the role of UKFI chief executive.