The Times Katherine Griffiths
Jim O’Neil, who leads Bank of America Merrill Lynch’s global financial institutions business, is rumoured to be about to secure the mandate to work for RBS as it prepares for the government to start selling its 79 per cent stake. Mr O’Neil’s role in the 2007 hostile takeover of ABN Amro, which eventually pushed RBS over the edge, was to pull together the finance for the RBS-led consortium. The purchase capsized RBS and Fortis, its Benelux partner, and led to the £45.5 billion government rescue.
Mr O’Neil also knows RBS from his more recent role at UK Financial Investments, the institution created to manage the government’s shares in banks. Mr O’Neil decamped from Merrill to UKFI in 2010, returning to the US bank three years later.
RBS has been searching for a new corporate broker that will also take the lead on giving advice over the privatisation. It was expected that the mandate would go to JP Morgan, which is bringing its role as adviser to UKFI to an end. But JP Morgan appears to have lost out to Bank of America. Neither bank commented.
RBS’s brokers are Morgan Stanley and UBS but the latter is not expected to retender for the role because of conflicts of interest with existing privatisation work for the government.
The manoeuvres come as investment banks jostle for the most lucrative and prominent work from the government as it steps up its plan to sell its remaining banking stakes.
The Treasury is expected to start with a sale of between £2 billion and £2.5 billion of RBS shares, or 6 to 8 per cent of its 79 per cent holding.
Despite the fact that it will be Britain’s biggest privatisation, George Osborne is thought to want to step gingerly into the sale because of the difficulties of RBS remaining lossmaking, uncertainty about its forthcoming US fines and the challenges of ensuring an orderly market as a fifth of its shares are in private ownership.
Observers believe the Treasury will reduce its holding in RBS quickly by organising an overnight placing with City fund managers, which would increase the free float and boost the share price.
Rothschild, whose report for the chancellor recommended going ahead with selling RBS shares, suggests an “initial small disposal” of shares. “The impact of even a small increase in the free float could be material . . . liquidity tends to increase quite rapidly as free float increases from low levels,” Rothschild said.
The Treasury may then copy the “dribble out” strategy it has been pursuing over Lloyds since December, under which Morgan Stanley has been mandated to sell small parcels of shares at above 73.6p, the average price paid by the government for its stake.
The dribble-out is deemed to have been a success, netting about £4 billion for taxpayers and reducing the government’s stake from 25 per cent to 17.9 per cent.
The approach is being considered for RBS because it could mean that ministers avoid possible rows with the public accounts committee and other critics if the selling price is thought to be too low, which would benefit City institutions and hurt taxpayers.
Bankers expect the sale to begin in September or October because of the large amount of preparatory work. That could create momentum in the share price, according to Joseph Dickerson, an analyst at Jefferies, the investment bank, because RBS will be able to sell another slug of its holding in Citizens, the US bank, from June 23, which will probably boost its capital.
RBS’s shareholders will also vote on a resolution allowing a buyback of 10 per cent of its ordinary shares at its annual meeting on June 23, which it could use to reduce the government’s holding, and then report good results for the second quarter on July 30.
The Treasury will have to juggle the sale of RBS shares with its sale of Lloyds, which is set for a “Tell Sid” retail offer this year or early next. That could be followed by a retail offer of RBS shares.