The Government has made no attempt to contact the handful of big City investors given preferential treatment during the Royal Mail flotation fiasco, despite many of them breaking an apparent gentlemen's agreement not to sell their shares. Some have gone on to sell millions of pounds worth of shares, even after the process was criticised in a National Audit Office report earlier this month.
The fact that Vince Cable and Michael Fallon's department of business has not sought assurances that priority shareholders will retain what shares they still own, or demand to know why they sold, has astonished some observers.
The select group of 21 pension funds and investment firms were given bigger allotments of shares in return for an unwritten understanding that they would hold on to them, giving the postal service stability under its new stock market ownership. The priority investors also had a huge influence on the pricing of the shares, the NAO report concluded.
In the event, the shares shot up in value within seconds of trading beginning. Twelve of the preferred investors quickly sold all or some of their stock, cashing in on hundreds of millions of pounds of profit that could have been retained by taxpayers had the shares been correctly priced, say critics.
Priority shareholders are continuing to cash in their shares. BlackRock – the world's biggest pension fund investor and widely reported as being a priority investor – sold nearly 430,000 shares worth £2.3m last week. UBS and State Street – also likely to be priority investors, sold even more – 1.75 million and 1.5 million shares respectively, worth about £9.2m and £7.9m.
The NAO was fierce in its criticism of the poor value achieved for taxpayers from the flotation, and Mr Cable and Mr Fallon will be questioned by the cross-party Business, Innovation and Skills select committee on Tuesday. The pair are expected to face bruising encounters – the chairman, Adrian Bailey, called for Mr Cable's resignation after the NAO report.
Despite repeated demands for the identities of the priority investors to be made public, Mr Cable and Mr Fallon have refused to publish them, citing commercial confidentiality. Mr Fallon has said that, as of the end of January, priority shareholders retained more than half of the shares allotted to them.
The pair are expected to repeat their argument that the float was a success. They will argue that the low pricing reflected concerns about the global economy and a threat of strike action by postal workers.
Bankers from UBS and Goldman Sachs, which marketed the shares to City investors, appear before the Public Accounts select committee on Wednesday, as do financial advisers Lazard, which advised the Government on the flotation. Lazard's chief executive, William Rucker, also goes before the business select committee on Tuesday. He was called to face both committees following The Independent's revelations of Lazard's extraordinary dominance of advisory contracts on privatisation by the coalition.
Mr Cable's Labour shadow, Chuka Umunna, said: "There are still huge unanswered questions on the Royal Mail fire sale and how the 'priority investors' came to sell so much of their stake immediately to make a fast buck. We now know that the Government has not itself had discussions with priority investors since the fire sale took place, but we need to know what assurances were sought – if any – on how long the big investors receiving extra shares would hold on to them."
The Government's failure to discuss the Royal Mail shares with priority shareholders emerged in a series of parliamentary questions posed by Mr Umunna to Mr Fallon.
Among those responses is also the admission that the Business Department (BIS) has not seen any correspondence between Lazard and the investors.
A BIS spokesperson said: "The majority of the investors secured as part of the pilot fishing exercise are still investors in the company.
"There was no agreement – gentleman's or otherwise – on the holding of Royal Mail shares by priority investors.
"As is standard practice for any flotation, we did not seek to lock any investors in as they would have paid less for a stock they could not trade."