RBS gears up for Britain's biggest-ever privatisation

Treasury mulls BT-style sell-off but City gives damning verdict

The Royal Bank of Scotland has set a target of 2014 to start Britain’s biggest ever privatisation. Its chief executive, Stephen Hester, said RBS was now “much closer” to being in a position where the Government could “start to sell its stake” in the bank. “The toughest work is behind us,” he added.

The company’s chairman, Sir Philip Hampton, said the 2014 target was a realistic goal. “They [the Government] want to get out and we want them out and we will do anything to assist them,” said Sir Philip.

The Independent revealed this month that the Treasury is drawing up plans to return RBS to the private sector before the next election. Ministers are examining a BT-style shares sell-off and also ways in which shares could be given to taxpayers for free. They want RBS off the Government’s books as soon as possible and believe the move could be a popular pre-election policy – though Downing Street said there was “no timetable” for the disposal.

Sir Philip admitted it was hard to see the Government pursuing a course that did not give tax payers the chance to get involved in the privatisation given the support they have contributed to keeping the bank afloat.

However, he questioned the plans favoured by some senior ministers to give free windfall shares in the bank to tax payers as a way of disposing of the state’s interest.

“You have to look at the logistics of such a plan,” he said. “Would you have to hire Wembley Stadium out every year just to keep in touch with everyone.”

The Government’s desire to shed its stake in RBS was underlined today, when the bank revealed it had paid £607m in bonuses despite recent scandals and another £5.2bn in losses.

Ministers realise that the bank has to pay bonuses to remain competitive but are acutely conscious of the bad publicity such payments bring.

Even as the majority shareholder they cannot veto such bonuses – they only have the power to dismiss the entire board.

Although RBS lost £5.2bn before tax, Sir Philip said £4.6bn of that resulted from changes in the value of the bank’s own debt, an accounting quirk based on how much RBS would have to pay to buy back that debt.

He and Mr Hester said the bank was much stronger than before and was willing and able to lend to small businesses. A lack of credit has been one of the main reasons Britain’s economy has failed to recover as fast as America’s.

Sir Philip said that relations with the Government were still sound. “If you have a majority shareholder you have to expect that majority shareholder to expect to be listened to,” he said.

“The tension in the dialogue is there [because] those things which are best politically are not necessarily the best things for investors. Clearly some of the things we have had to announce and do are a result of a combination of political and regulatory pressures.”

He added: “One of the things which we and the Government are both very conscious of is that the RBS story is only a success if we are privatised successfully. We have a complete unity of purpose but different pressure on how we get there. I know the Government wants to get us out of their hair as soon as they decently can.”

But the City’s verdict was a resounding thumbs down, and the bank’s shares finished the day in a slump, down 22.9p at 323.9. Ian Gordon, an analyst at Investec who rates the shares as a sell, warned that the bank was still financially weaker than expected and said it might not be until 2017 that its return on equity equalled costs.

Flotation: Sharing the wealth?

BT

In December 1984, British Telecom became the first major flotation. Almost two fifths of the shares were given to 2.1 million members of the public and half were bought by major British institutions.

British Gas

Following the perceived success of BT, the British Gas Corporation floated in 1986 as British Gas plc. The “If you see Sid...” ad campaign encouraged people to buy 135p shares.

British Rail

John Major continued the trend in 1993 with British Rail, amid much controversy and lobbying against it. The service had been largely self-sufficient.            

Emma Bamford

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