If ever we needed proof that Vince Cable’s sale of Royal Mail was done far too cheaply at 330p a share, yesterday we learned that the second batch of the taxpayer’s stock was offloaded at 500p.
Had the first lot been similarly priced, we would have received £1bn more than we did – enough to fund (for a year) 8 per cent of the Chancellor’s planned cuts to welfare benefits.
Ah well, that’s yesterday’s post. The question now is: what next for the company? What are its prospects at a time of dwindling letter volumes, the Universal Service Obligation and increased rivalry in the parcels world?
Royal Mail argues that, while it doesn’t mind the USO commitment to deliver to every address in Britain, six days a week, it deserves to be cut some slack in other demands from the regulator by way of compensation. Primarily, that means some help competing with rivals not burdened with such an onerous service.
Ofcom is not convinced, saying the Royal Mail already has a clear advantage over its rivals due to its dominant market position as the former monopoly. Make yourself more efficient, rather than whinge about getting a leg-up to beat your competitors, the regulator says.
Royal Mail got some decent ammo for its argument in the form of 2014 accounts for Whistl UK Limited, the rival company which has just pulled out of delivering letters because it is so expensive.
The accounts show just how much Whistl was losing in the letter-delivery game, even though it had cherry-picked the most lucrative urban routes and was only dealing with easy-to-handle corporate mail.
Whistl’s operating loss on these so-called “end-to-end final mile” deliveries was some £10.3m in the year to 31 December, spiralling from £2.1m the year before as it rolled out its service to new delivery routes. Costs and administrative expenses surged from £2m to £10m, too.
With bulk business-mail volumes falling by 3.3 per cent in the UK as a whole, little wonder Whistl’s letters joint venture partner, Lloyds’ private equity arm, pulled the plug.
Rothschild massaged the figures on ‘£7bn’ RBS loss
You may have spotted yesterday that, unlike the rest of the media, this newspaper’s coverage of the RBS shares sale did not refer to the “£7bn” loss taxpayers would make on the deal.
The reason was this: I didn’t like the way Rothschild – the government’s advisers – massaged the numbers. The loss the public should be told about is far higher.
Firstly, Rothschild blended the good bank bailout investments (Lloyds, the former Northern Rock and Bradford & Bingley) with the bad (RBS) to get a nicely scented overall figure showing that we’ve made a tidy profit of £14bn on our interventions.
It should not have done. The privatisation Rothschild was asked to explore was that of RBS, and RBS alone, not some irrelevant, sweetened mixture.
Even then, the multiple bank bailout calculations failed to include the £17bn cost of funding the £108bn or so cash the government had to find to buy the shares.
Rothschild also muddies the extent of our losses on RBS by including the “cash and fees” we taxpayers received from the banks in return for the state guarantees we gave them. This too was tricksy accounting.
Sure, this too-big-to-fail insurance (which allowed the sickly banks to borrow more cheaply than they otherwise would) didn’t cost the country any actual cash, but it was still a liability.
Meanwhile, in its tables on the finances, Rothschild gives the impression that these fees were a return on the money we taxpayers spent on the shares. They weren’t.
Ignore them and focus on the numbers that are relevant to how much we stand to lose by selling the shares now.
We paid £45.8bn for them; they are now worth £31.6bn. That means a £14.2bn loss.
The lesson from the Rothschild report? Be sceptical when big City banks advise you to sell to big City banks.
The taxpayer deserves to stick around for the benefits
The best news from the Mansion House dinner on Wednesday night was that bankers predict it will be five to seven years before the entire RBS stake is sold.
This may not be what RBS management wants to hear, but a lengthy, staged sale is vital to get a good outcome for taxpayers. Unlike with Royal Mail, it means there is a far better chance of avoiding the galling prospect of a state-owned asset being largely sold at what transpires to be too low a price.
It would also ensure that the country gets to share in more of the upside from the remainder of RBS management’s restructuring programmes.
Lest we forget, this includes the sale of its 40.8 per cent sale of the giant Citizens bank in the US (fetching perhaps $6bn) and, if you listen to some analysts, a potential £10bn share buyback in 2016.
That’s worth sticking around for.Reuse content