A logo of an Royal Bank of Scotland (RBS) is seen at a branch in London
A logo of an Royal Bank of Scotland (RBS) is seen at a branch in London. REUTERS

As taxpayers digest news of a loss on the sale of Northern Rock plc, UK legislators have expressed doubt that the public money used to bail out banking giants Royal Bank of Scotland Group plc and Lloyds Banking Group plc will ever be recovered.

The House of Commons Public Accounts Committee said in a report that the sale of Northern Rock in 2011 was "fortunate" and "well-handled", but the bank's rescue is expected to cost about £2bn, in line with the National Audit Office's estimates.

The previous government in 2008 spent £1.4bn to recapitalise Northern Rock, which was hit by the global financial crisis. Subsequently, the bank was split into two, separating the retail banking business from the troubled mortgage assets.

In 2011, the retail banking unit was sold to billionaire Richard Branson's Virgin Money Holdings for an estimated £931m. The deal, which received only two bids, is expected to cost the treasury £469m. The actual loss due to Northern Rock still rests on how the remaining mortgage assets are handled.

"The lack of competition does not fill us with confidence that the taxpayer will make a profit on the sale of the two banks which remain in public ownership, RBS and Lloyds. There is a risk that the £66 billion invested in RBS and Lloyds may never be recovered," said Margaret Hodge, the committee chairwoman and a member of the opposition Labour Party.

The committee added that it was not confident of stakes in the banks selling at break-even price in the near future.

During the financial crisis, the government injected £65.8bn into RBS and Lloyds and took over 81 percent and 40 percent of stakes in the banks, respectively. Since the takeover, the government has lost more than £25bn due to declines in the banks' share prices.

The committee accused the treasury and UK Financial Investments (UKFI), which took over the management of the failed banks in 2010, of being too slow to challenge Northern Rock's strategies.

"The Treasury lacked the skills to understand Northern Rock. It took too long to nationalise the bank and failed to make an effective challenge to the bank's business plan, first after nationalisation in 2008 and again in 2009 when deciding what to do with the bank," the report noted.

"Northern Rock plc still lost money in 2011, and its strategy should have been challenged sooner."