Osborne to cut losses with £32bn sale of RBS

The Times

Sam Coates Deputy Political Editor 

People walk past a branch of The Royal Bank of Scotland

George Osborne signalled the end of the biggest taxpayer bailout in British history yesterday by announcing the sale of the public’s £32 billion stake in Royal Bank of Scotland.

Seven years after the stricken bank was saved from collapse by a £45 billion taxpayer bailout, the sale of shares will go ahead within months.

The first round of shares will be sold for less than the taxpayer paid, the chancellor said. The Treasury would lose £7 billion if it sold its entire 79 per cent stake immediately, according to a government-commissioned report by the bankers Rothschild. Mr Osborne warned that any delay could be bad for the economy.

“Do we begin the process of selling down the government’s huge majority stake, even though the share price is still below what the last chancellor paid out seven years ago? Or do we hope against hope that something will turn up?” he said in the annual Mansion House speech to the City of London last night.

“Frankly, in the short term the easiest path for the politician is to put off the decision and leave it to someone else at some future time to pick up the pieces. I’m not interested in what’s easy — I’m interested in what’s right.”

The Rothschild report says that the taxpayer would make an overall profit of £14 billion today from the various rescue missions launched at the height of the financial crisis in 2008, including approximately £5 billion from the sale of shares in Lloyds Bank.

This is a substantial improvement on the predictions made in Alistair Darling’s 2009 budget, which estimated that the ultimate cost to the taxpayer for rescuing RBS and Lloyds would be in the order of £20 billion to £50 billion.

Mr Osborne’s announcement came on the day that the new government’s financial policy took shape. It also emerged that:

•One per cent of Royal Mail will be handed to the company’s employees, including postmen and women across Britain. This came hours after the chancellor announced plans to sell a 15 per cent stake in Royal Mail immediately to take advantage of “current market conditions”.

•Mark Carney, governor of the Bank of England, used his own Mansion House speech to set out plans for rogue bankers and traders who break the rules to be jailed for up to ten years, up from the present maximum of seven years.

•Dr Carney also declared that “the age of irresponsibility is over”. He said that failings in market structures, standards, systems and incentives skewed to short-term returns, coupled with a “culture of impunity” in parts of the market, had contributed to an “ethical drift”.

•Mr Osborne also warned the Eurozone that Britain could block further integration measures if it does not agree to additional safeguards for the UK to protect the single market.

Mr Osborne is gambling that by disposing of a small tranche of RBS shares at a loss in the coming months he will push up the value, meaning eventually that the taxpayer could benefit from the overall sale.

“Yes, we may get a lower price than Labour paid for it. But the longer we wait, the higher the price the whole economy will pay. And when you take the banks in total, we’re making sure taxpayers get back billions more than they were forced to put in.”

The chancellor will indicate that members of the public might be offered shares in future. Given the complexities of RBS, initially shares will need to be offered to city institutions.

The announcement has the backing of Dr Carney. There remain huge hurdles before RBS can generate a profit, however: last night RBS shares closed at 355p, significantly below the 502p paid by the last Labour government.

Mr Osborne suggested that Labour paid too much for the stake in 2008, even though it deliberately overpaid to try to end the bank’s funding shortfall.

“I was not responsible for the bailout of RBS or the price paid then for shares bought by the taxpayer. But I am responsible for getting the best deal now for the taxpayer and doing whatever I can to support the British economy,” he said. “There is no doubt that starting to sell the government’s stake in RBS is the right thing to do on both counts.”

Lloyds Banking Group announced yesterday that the government had sold off more of its stake, reducing its investment from almost 20 per cent to below 18 per cent. It means the government has now recouped about £11 billion of the £20.5 billion spent bailing out the lender in the financial crisis.

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