In the United States, American banks have managed to repay their debts and emerge from partial government ownership. But the situation across the pond isn’t the same. Some U.K. based banks are still partially in government hands rendering their futures less certain than their foreign counterparts. However, the banks aren’t the only ones under new ownership. Two of the most famous British automakers are now owned by a foreign company. Here we will look at both the selection of investments in U.K. based banks and see what has become of these British automakers.
Government owners
During the worst of the financial crisis, the U.S. government injected capital into financial institutions including Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), and the poster child of Wall Street excess, American International Group Inc (NYSE:AIG) better known as AIG. While these institutions are now privately owned, U.K. based Lloyds Banking Group PLC (ADR) (NYSE:LYG) and Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) are still partly owned by the U.K. government.
For Lloyds the government holds a minority stake of 40%. The bank appears to be headed in the right direction as it hopes to lower the government stake over the next few years and possibly resume a dividend. Leaving government hands could provide a boost to Lloyds’ share price after the shares are completely divested by the government.
With Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) among the riskiest of the U.K. banks, there are still other banks in the country that offer more stability. Lloyds Banking Group PLC (ADR) (NYSE:LYG) could begin paying a dividend again and HSBC is already paying a dividend currently yielding just over 4%.
Foreign owners
There was a time when British automakers Jaguar and Land Rover represented British class in the automotive marketplace. But while the vehicles went to those in sound financial shape, the companies themselves were giving up their British ownership. Ford took control of both companies and formed its Premier Automotive Group that also included Volvo and fellow British automaker Aston Martin. When Ford was looking to raise funds in 2007 it began a sale of the brands in its Premier Automotive Group. In the end, Ford found buyers for all four brands selling them off to various groups around the world.
Volvo was sold to China’s Geely, Aston Martin to a consortium of investors, and the remaining two to Indian automaker Tata Motors (NYSE:TTM). The nation ruled by Britain less than a century ago is now home to the company that owns some of the jewels of the British automotive crown. As an emerging market automaker, Tata’s best known model is its ultra-cheap Tata Nano designed to appeal to the growing percentage of the population in the market for a car on a tight budget.
Now Tata is in the position of working both the high and low ends of the market. Tata’s future will largely depend on the success of its lower priced offerings since the automaker is built mostly around its emerging market vehicles. However, by having vehicles with solid brand names at the top end, Tata has a more complete line to target a larger variety of customers. If Tata can develop a strong middle market segment then the automaker could more effectively sell higher priced cars to the same customers as they move through their lives earning higher incomes.
Changing companies, new owners
After a financial crisis threatened the health of the U.K. banking system, Lloyds and Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) have become partially government owned by the U.K. government is a manner similar to the American financial meltdown. Due to consolidation in the automotive industry, Britain’s automakers have been acquired by foreign companies and now comprise parts of Tata Motors and an investment fund. Investors in these companies need to be aware of what the new owners may have in store for them. Government policy may determine how Lloyds is sold off and whether Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) is nationalized and Tata Motors will continue to exert control over Jaguar and Land Rover. To invest in the banks, one can buy the common or preferred stock while factoring in the uncertainty of their company being partially government owned. But to invest in the automakers, one would have to buy shares of Tata Motors. In the second situation investors will have to decide for themselves whether the rest of Tata fits with their overall investment strategy.
The article New Owners of U.K. Banks and Automakers originally appeared on Fool.com and is written by Alexander MacLennan.
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