The British government is to sell £2bn of shares in Royal Bank of Scotland, marking the start of the UK’s biggest-ever privatisation and a milestone in the country’s recovery from the global financial crisis.
An initial tranche of shares representing a 5.2 per cent per cent stake in the state-backed bank will be placed with institutional investors on Monday night as the government begins the process of selling its 78 per cent stake, which is worth £32bn at current prices.
The start of the RBS’s privatisation represents a watershed moment in the return to health of what was once the world’s biggest bank by assets, before it became one of the most spectacular victims of the financial crisis and was bailed out by the UK government with a record £45bn.
The Dutch and Irish governments have also started the process of selling shares in ABN Amro and Allied Irish Banks respectively – two of the other big victims of the financial crisis.
The Treasury said on Monday: “The government set out its objectives for its shareholdings in the banks in the chancellor’s annual Mansion House speech in June 2013: getting the best value for the taxpayer, maximising support for the economy and restoring them to private ownership. And, as set out in that address, the government will only conclude a sale if these objectives are met.”
However, George Osborne, the chancellor, admitted last month that shares would be sold at a loss to taxpayers, by comparison with the cost of bailing out the bank. If the whole stake were sold at the current price, the total loss could amount to £13bn.
The share sale comes after a surprise 27 per cent year-on-year surge in RBS’s second-quarter profit to £293m, following a net loss in the first quarter.
Shares in RBS are trading at 340p, some way below the 502p which the government paid.
Mark Garnier, a Conservative MP, said: “I’m in full support of doing it now . . . it’s long overdue.”
Beginning the sale process will boost liquidity and demand for shares, while enabling the bank to guide its growth rather than being under the control of the Treasury, he said.
“The reality is that taxpayers will make money out of some these transactions, such as Lloyds, while others will break even or incur a loss,” Mr Garnier added. “But you have to look at the whole bailout as a portfolio of crisis management – a portfolio that will end up with taxpayers making money.”
James Leigh-Pemberton, executive chairman of UK Financial Investments, the Treasury unit that manages taxpayer shareholdings in two rescued banking groups, Lloyds and RBS, said in a letter to Mr Osborne on the day of the summer Budget that he expected to sell at least £2bn by April next year.
He added that it was feasible to realise a total of at least £25bn from the sale of RBS shares – representing more than three-quarters of the government’s stake at current market price – over the course of this parliament.
Matthew Beesley, head of global equities at Henderson Global Investors, said: “What’s different now versus a year ago is the restructuring is happening with some urgency.
“Clearly, there’s more of a journey left for RBS than Lloyds in terms of restructuring and transforming into a UK-focused bank. The challenge is the [RBS] share price already discounts quite a bit of that. While returns are rising, they are still pretty low in the mid-single digit.”
The government announced on Monday that it had reduced its stake in Lloyds to 13.99 per cent through a “trading programme” that drip-feeds shares into the market. The Treasury has sold off 11 per cent through the programme, which started last December and could run until the end of this year.
RBS faces other major obstacles in its path to recovery, including its biggest-ever fine imposed by US regulators for alleged mis-selling subprime mortgages before the crisis. The bill could be as high as $13bn, according to a US government agency in a recent court filing.
In the bank’s first-half results last week, RBS chief executive Ross McEwan said the bank was not currently in settlement talks with US regulators on the issue and that it might be a further six-12 months before discussions start.
Sir Philip Hampton, the outgoing chairman, previously warned in an interview with the Financial Times that, given the uncertainty over the size of the fine it might “be a good idea for that to be out of the way” before privatisation starts.
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