OUTLOOK: The Faustian pact behind Royal Mail's cheap sell-off

 

Outlook While MPs might not be much loved, there aren't many who won't cheer them on when they're monstering bankers.

But while the Business, Innovation & Skills committee was fun to watch, to no great surprise the bankers stuck to their guns and their story when it comes to the valuation put on Royal Mail's shares ahead of its privatisation.

Their contention was that City institutions would have baulked were the price raised much above the top of range 330p (the shares have since shot above 500p) at which Royal Mail plc eventually debuted.

Which misses the point. If the institutions weren't going to play, the public probably would have. So oversubscribed was their part of the flotation that no one (myself included) got more than a minimum allocation. Would I have bought at, say, 360p? Very probably. That price, remember, is at the lower end of a valuation range suggested by Gert Zonneveld, the co-head of equity research at Panmure Gordon.

But even Mr Zonneveld's range looks conservative now. That's wonderful for those of us who invested and stayed put. But not so good for the taxpayer, who has been left out of pocket.

I'm not about to argue that the shares shouldn't have been priced to go. That's what happens with big sell-offs. But there is a world of difference between priced to go and sold off on the cheap.

The performance of Royal Mail since the sell-off demonstrates that its privatisation belongs in the latter category. Of course, you won't find the banks that advised on the flotation admitting that. And you won't find Mr Cable admitting that either.

He had the chance to hike the price. But there's probably a good reason for him not doing so. He, and the Government he represents, appear to have signed a Faustian pact with the City.

It amounts to this: ministers will do what they are told in return for the City finding a home for the billions of pounds' worth of banking shares the state would desperately like to get off its books. Of course, they'll never admit that. And so we'll probably be here again when the next state asset is sold off on the cheap.

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