Royal Mail float: How banks broke promises and raked in a £323m fortune – and lost taxpayers £1bn
We knew taxpayers were short-changed. Now the full scale of the City’s double-dealing has been revealed. So why can’t the offending firms be named?
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Tuesday 01 April 2014
The full scale of how City banks short-changed taxpayers in the £3.3bn flotation of Royal Mail was laid bare last night as it emerged that big investors who were offered extra shares in a “gentleman’s agreement” to stay in for the long term sold them almost instantly at a vast profit.
In a damning verdict on the handling of the sale, the National Audit Office (NAO) painted a picture of the Government - and taxpayers - being fleeced by a sophisticated City operation.
Twelve "priority investors" sold all or some of their holdings within the first few weeks of trading - despite informal agreements to hold on to the stock. Their identities have still not been disclosed.
Vince Cable, the Business Secretary, is today expected to face demands to make a Commons statement on the sale.
Shares in the Royal Mail rocketed 38 per cent on their first day of trading and have been 72 per cent higher than they were sold for, representing a value loss to the taxpayer of around £1bn.
Mr Cable has described the steep share price rise as "froth" and has argued that the priority was to get a troubled business with industrial relations problems off the Government's books.
However, Amyas Morse, the head of the NAO, charged his department with acting throughout the process with "deep caution - the price of which was borne by the taxpayer".
Margaret Hodge, who chairs the Commons Public Accounts Committee, berated the Department for Business over its "second-class performance" and for "having no clue what it was doing".
The NAO claimed that the department's caution meant officials did not reprice the shares ahead of flotation, even when it was clear they had been pitched too low.
In the run-up to the flotation, 16 priority investors were identified and offered extra-large stakes in the business.
This was part of the effort, repeatedly emphasised by Mr Cable, to ensure the company was owned by long-term shareholders rather than hedge funds, which can create instability for firms by trading in and out. However, the NAO report revealed that, within weeks, priority investors had sold almost half of the shares allocated to them. Hedge funds now make up a large number of the shareholder list.
Those same priority investors were the ones who had told the advisers before the flotation that they would not buy in at any more than 330p - the eventual price at which they were set.
However, when the price range was set, orders from City institutions poured in, making the offer 24 times oversubscribed - a clear indication that the price had been set too low.
An analysis by The Independent of the supposedly long-term investors with the biggest 20 allocations suggests they made profits of as much as £323m by selling their shares. The NAO declined to name them but they include seven which sold their entire stake, booking individual profits of between £10m and £36m.
That will enrage members of the public, who were allowed only a maximum of £750-worth. Revelations of these quick sales by investors led to anger that the firms were able to keep their identity secret. Neither the Government nor the NAO would reveal their identities yesterday.
A Communications and General Workers Union spokesman said: "These institutions should be named. They have profited greatly at the expense of the taxpayer and we should be told who they are and why they were selected for preferential treatment. We are told there was a gentleman's agreement - but for the Government to believe that would stick when there was profit to be made is just foolish."
While the NAO commended the Government for using external advisers, it questioned whether it was wise to rely so heavily on a City firm, Lazard, for that advice.
Mr Cable said: "We secured the future of the universal postal service through a successful sale of a majority stake in Royal Mail.
"Achieving the highest price possible at any cost and whatever the risk was never the aim of the sale. The report concludes there was a real risk of a failed sale attached to pushing the price too high and a failed sale would have been the worst outcome for taxpayers."
But Chuka Umunna, the shadow Business Secretary, said: "This report delivers a damning verdict on the Government's botched Royal Mail fire sale, leaving the taxpayer disgracefully short-changed by hundreds of millions."
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