George Osborne fired the starting gun on the sale of the government’s stake in RBS to big City investors at a £14bn potential loss to taxpayers.
The Bank of England governor, Mark Carney, wrote to Mr Osborne to give his blessing to the move.
The Labour government spent £45.8bn buying shares in RBS at an average of 502p during 2008 and 2009 to save the bank from collapse. It was hoped that, as is now happening with the Lloyds bailout, the 79 per cent stake could be sold at a profit in future years once RBS was nursed back to health.
In the event, lumbered with a giant global investment bank to fix, plus heavy fines from regulators, RBS’s shares have fallen well below the price taxpayers paid for them, last night closing at just 352p and valuing the taxpayer’s stake at £31.6bn.
But the Chancellor announced at his Mansion House speech in the City of London that he would start selling them in the coming months anyway.
Big institutional investors will be offered the shares before ordinary members of the public due to RBS’s “complex investment case.”
The Chancellor 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.”
A quick sale would, he said “promote financial stability, a more competitive banking sector, and the interests of the wider economy.”
His announcement was made along with the publication of advice from Rothschild, the City bank he appointed to examine whether the shares should be sold to big investors despite their low price.
The Rothschild report advised Mr Osborne to press on with the sale because the share price did not look set to rise significantly soon, stock market conditions were currently good and a sale of some of the shares would make the remainder more marketable.
10 companies that have escaped government privatisation - so far
10 companies that have escaped government privatisation - so far
1/10 The Post Office
The Post Office provides the stamps (alongside banking and bill payment services) for the letters delivered by Royal Mail, which floated on the stock exchange in 2012. The same act that privatised Royal Mail also contains the option for the Postal Service to become a mutual organisation – where each post office owned a share of the business – to counter annual losses and branch closures. A spokesperson said: “Privatisation is absolutely not on the cards for Post Office.”
2/10 Royal Bank of Scotland Group
The UK government owns and manages an 81 per cent stake of the RBS Group through UK Financial Investments – a company set up in 2008 to manage the Treasury’s shareholdings in UK banks. The government’s voting rights are limited to 75 per cent so the bank can continue to be listed on the London Stock Exchange.
3/10 Community Health Partnerships
Set up in 2001 as Partnerships for Health, Community Health Partnerships is in charge of setting up public-private partnerships to invest in new healthcare facilities in England.
4/10 London and Continental Railways
This is the company set up to build the high speed railway. Originally private, the company had to be nationalised in 2009 after it ran into financial difficulty. In 2010 a group of Canadian teachers – the Ontario Teachers’ Pension Plan – bought the operating rights for £2.1 billion for 30-years – after which time the government is hoping to sell it for a much bigger sum.
5/10 Royal Mint
The company that makes all the UK’s coins and notes is wholly owned by the Treasury, which delegates shareholder responsibilities to the government’s Department for Business, Innovation and Skills.
6/10 Lloyds Banking Group
The Treasury holds a 23.9 per cent stake in Lloyds – a much lower proportion than the 41 per cent it owned after the financial crisis hit in 2008. The government started selling Lloyds shares in 2013 – the latest sale means it has now raised nearly £8 billion from the venture.
7/10 UK Green Investment Bank
A new funding institution created in 2012 to attract funds for environmental preservation and improvement, the Green Investment Bank is structured as a public limited company and owned by the Department for Business, Innovation and Skills.
8/10 Bradford & Bingley
Shareholders in Bradford & Bingley were not given any compensation when the government bought out Bradford & Bingley in 2008 – many of whom now argue that the takeover was botched job that left nearly a million investors dispossessed.
9/10 International Nuclear Services
A wholly owned subsidiary of the UK Government’s Nuclear Decommissioning Authority, INS manages and transports nuclear fuels such as uranium, MOX fuel, irradiated fuel and nuclear waste.
10/10 Student Loans Company
Ownership of the Student Loans Company is shared between the governments of the UK, with the department for business, innovation and skills owning a majority stake (85 per cent). Since the late nineties, the government has been selling the loans themselves, however. Last year the government said it would start selling the £12 billion book of 1998-2012 loans.
Rothschild added a sale would send a clear signal that RBS was recovering and no longer bore the risk of being influenced by the Government. It said the stock market had dramatically reduced its assessment of RBS’s value since the bailout due to £30bn losses it has since recorded. “We believe a significant proportion of the reduction in value is likely to be permanent,” the report said.
Mr Carney echoed the main points of Rothschild’s reasoning, declaring: “Public ownership has largely served its purpose. It prevented enormous financial contagion at a time when the UK financial system was extremely fragile. It has stabilised RBS and helped catalyse the refocusing and necessary strategic change to build a viable business model that concentrates on serving UK households and businesses.”
The Rothschild report acknowledged, however, there was a “significant risk” of hugely expensive fines on RBS from US regulators, and that this may deter investors from buying the shares. It emerged that many of the biggest City institutions would refuse to buy them because they too are suing RBS.
Thousands of investors, including dozens of big institutions, have joined together to sue the bank for an expected £6bn over its disastrous rights issue in 2008. John Campbell QC, representing the RBoS Action Group, told The Independent that its members were “absolutely not” minded to buy more shares in the bank until their legal action is resolved.
Also speaking at Mansion House, Mr Carney unveiled a host of measures designed to clean up the City in the wake of a host of rate-rigging scandals.
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