David Prosser: Banking bet may pay off

Outlook Good news for the taxpayer: we are finally showing a profit on our £35bn investment in Lloyds and Royal Bank of Scotland. Having been underwater to the tune of £26.5bn at one stage, the combined positions are now in the black for the first time, around £500m up.

Before you get too excited, the gains are illusory. For one thing, the stakes are too big to sell at the prevailing market price. Also, we have no idea about the eventual size of taxpayers' exposure to the asset protection scheme (APS), the toxic asset insurance plan.

Still, better an illusory gain than no gain at all. Moreover, the APS is increasingly looking like a decent bet for the taxpayer – so much so that Lloyds, which has still to finalise its participation, may decide in the end not to bother.

For RBS, meanwhile, the cost of the APS could be as much as £17bn, says Oriel Securities, taking into account the premiums the bank is paying and that it is waiving the right to set losses on the assets insured against its future tax bills.

Add that to the £19.5bn of losses RBS must endure itself before the taxpayer starts paying, and you get almost £37bn. Oriel currently estimates the bank's future losses at a little over £34bn, which makes for another £2.5bn of profits for the taxpayer. Happy days.