Osborne Seeks To Alter Debate Over RBS Value

Sky News 23:00, UK, Sunday 07 June 2015

The Chancellor will ask advisers to present options for taxpayers’ stake in RBS seven years after its rescue, Sky News learns.

RBS Avoids 'Good' And 'Bad' Bank Split

RBS chief executive Ross McEwan and the Chancellor George Osborne

By Mark Kleinman, City Editor

George Osborne will this week attempt to reframe the ‘value-for-money’ debate around the taxpayer’s stake in Royal Bank of Scotland (RBS) when he unveils a review of options for the shareholding ahead of its return to the private sector.

Sky News has learnt that Treasury officials have recently been engaged in a secret exercise to assess the overall contribution made by taxpayers to rescuing the UK’s faltering banking system during the crisis of 2008.

According to City insiders, the Treasury has been preparing the ground in recent months for Mr Osborne to focus attention on the aggregate cost of the banks’ rescue, rather than on the isolated cost of saving RBS from collapse.

The sources said that he would almost certainly use his annual Mansion House speech on Wednesday to disclose that the Treasury is instructing external advisers – likely to be a leading City bank – to conduct an assessment of the state’s 80% stake in RBS.

While the Chancellor will say that he is committed to achieving value-for-money from the RBS sale, which will take a number of years, officials are keen that that assessment is made in the context of the overall bail-out package.

The Chancellor is unlikely to commit to a firm date to begin selling RBS shares, although one source said he would signal that with much of the bank’s restructuring now complete, the process could commence within months.

James Leigh-Pemberton, the executive chairman of UK Financial Investments (UKFI), which manages the taxpayer’s shareholding, is expected to write to Mr Osborne this week to signal that the time is right to conduct such a review.

Mr Osborne has already hinted strongly at a push to offload the Government’s remaining banking sector investments, saying before the General Election that a decision about RBS would be made early in the new Parliament.

Last month he told a CBI dinner that he wanted to “get the Government out of the business of owning great chunks of our banking system”.

UKFI is understood to believe that even if an initial tranche of RBS shares is disposed of at a loss, increased liquidity in the stock will pave the way for future demand for shares.

The latest annual report of UKFI shows that taxpayers’ £45.5bn investment in RBS – which took place over separate stages between December 2008 and December 2009 – was made at an average price of 502p-per-share.

However, that figure reduces to 455p-per-share when billions of pounds in fees paid by RBS to the Treasury for the use of emergency support schemes are taken into account.

And that number reduces still further – to 407p – on the Government’s books, reflecting the average price at which RBS shares were trading when taxpayers rescued it.

On Friday, the shares closed at 357p, still well below the lowest average price at which ministers could argue the Labour government paid in 2008 and 2009.

Since RBS’s rescue, many of the profit-drivers within the group – such as the payments processor Worldpay, its commodities trading arm, the insurer Direct Line, and lucrative parts of its investment bank – have been sold or closed amid political and regulatory pressure.

However, the Treasury has profitably recouped billions of pounds from the sale of shares in Lloyds Banking Group, with Mr Osborne recently pledging to dispose of £9bn of the bank’s stock during the next year.

A retail offering to ordinary investors is also due to take place by May 2016, and the Chancellor has said that no shares will be sold below the 73.6p-per-share average investment price – the equivalent of the 502p figure at RBS.

A separate sale process is under way for £13bn of mortgage assets originated by Northern Rock, which bankers believe could yield a profit for the Treasury.

Among the bidders for that portfolio, called Granite, is RBS, as Sky News revealed last month.

Some analysts believe that any sale of RBS shares in the short term would have to be priced at a larger-than-usual discount because of lingering uncertainty about the scale of a fine that it will have to pay to US regulators over its sale of mortgage-backed securities prior to the financial crisis.

Separately, sources said expectations that the Chancellor would pave the way for a review of the Bank Levy, which raises billions of pounds annually and hits HSBC hardest, were wide of the mark.

The Treasury declined to comment on Sunday.

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