The Government faces a “long and difficult” sale of its stake in Royal Bank of Scotland, according to experts.
In his annual Mansion House speech in London yesterday evening, Chancellor George Osborne announced that a sale of the Government’s 80 per cent stake in the bank would begin in the coming months.
The process is expected to take years in order to maximise returns, taking in multiple different types of investors, beginning with institutions.
The decision follows a consultation between the Chancellor, the Bank of England and Rothschild, with all three agreeing that market conditions are right for a sale.
In his speech, the Chancellor said although the RBS share price remains well below the level at which the previous Labour government ploughed cash into the bank, he remains confident taxpayers will get £14bn returns beyond their investment into the UK’s banks overall.
Trading in RBS shares closed at 354.80 on 10 June, having been more than 500p when the Treasury bought its stake in the bank in 2008.
Osborne said: “I was not responsible for the bailout of RBS or the price paid then for shares bought by the taxpayer: but I am responsible for getting the best deal now for the taxpayer and doing whatever I can to support the British economy.
“There is no doubt that starting to sell the Government’s stake in RBS is the right thing to do on both counts.”
The Chancellor argued that beginning sales now, and gradually releasing government holdings into the market, will increase the desirability of its remaining shares.
The Share Centre investment research analyst Graham Spooner says: “Potential investors may see this move as symbolic of the country moving on and away from the past financial crisis.
“However, the sale is expected to a difficult one, as the bank is still on the road to recovery and has reported seven years of losses since the bail out.
“We remain cautious on RBS and currently list is as a ‘sell’ for investors. We believe there are better opportunities for followers of the banking sector, such as HSBC.”
Cicero director Iain Anderson says: “The Government has been balancing a desire to get the best value for the taxpayer with the recognition that it shouldn’t be owning banks.
“While RBS has paid money back to the Treasury along the way in terms of fees and taxes, at the same time the Chancellor was quite candid that this is a loss on the original investment.
“As the bank becomes increasingly profitable, however, hopefully more value will be released to the taxpayer. The sale will be a slow process and I imagine the Government is aiming to complete it by the end of this Parliament.”
But Warwick Business School professor of financial economics John Thanassoulis says it is not clear why now is viewed as the right time to sell the Government’s stake.
He says: “When selling a business, it is important not to be seen as a forced seller. It would be very damaging if the Government were to come back without finding a buyer, so it will be under pressure to accept low prices.
“It is also standard practice to aim to turn around a company before bringing it back to the market. RBS is still trying to sort out its investment bank and is not a finished business.”
Timeline: RBS’ bailout
April 2008: RBS asks shareholders to pump in £12bn of new capital after revealing £5.9bn of credit crunch write-downs.
August 2008: The bank reports a pre-tax loss of £691m for the first half of 2008.
November 2008: The Government takes a 58 per cent stake in RBS for £15bn, plus £5bn in preference shares. Stephen Hester replaces Fred Goodwin as chief executive.
January 2009: The Government converts its £5bn of preference shares to common stock, increasing its stake to 68 per cent.
February 2009: RBS reports a loss of £24.1bn for 2008, the biggest in British corporate history.
November 2009: The Government pumps another £25bn into RBS, increasing its stake to 84 per cent.