RBS share sell-off is given the green light

The Times 

A branch of RBS

The government is set to launch its first sale of Royal Bank of Scotland shares since the lender’s £46 billion taxpayer-funded rescue nearly seven years ago, marking the beginning of the bank’s return to private ownership.

Bankers have been sounding out investors for the past week about a sale of RBS stock that could begin in the next few days. The aim is to sell about £2.5 billion, or 6 per cent, of the bank’s shares in the initial sale, with taxpayers set to make a loss.

UK Financial Investments, which manages the stake in RBS, may still decide to hold off on the sale until September, with some investors saying they want more information about the outcome of the competition and markets authority’s investigation into the banking market and in particular its impact on the Williams & Glyn challenger bank that RBS has to spin off in return for its state aid.

Calls to investors from various investment banks intensified yesterday after RBS published financial results for the first half of the year showing that the bank made a net loss of £153 million after it was hit by a series of legal and conduct charges.

Despite the results, RBS shares rose sharply as investors were cheered by the shrinking size of the lender’s losses. The shares drifted lower over the afternoon trading session as rumours swept the London market of an imminent offering of the stock, closing down 2.4 per cent at 344.8p. The government’s break-even price is 502p.

UKFI owns 79 per cent of the bank’s total share capital worth a little under £31 billion at current market prices, meaning the taxpayer would be left nursing a loss of more than £10 billion if the entire stake was sold now.

However, the sale is likely to take at least five years, meaning taxpayers should eventually make a profit. RBS is not thought to have been told about the sale. Its management may not be notified until the last minute.

The initial share sale is likely to appeal to investors prepared to take a significant risk, including hedge funds and sovereign wealth funds, given the litigation costs and other compensation bills that RBS still faces.

When UKFI started to sell its holding in Lloyds in September 2013, it pushed the button at the last moment after days of tumultuous markets, selling 6 per cent of the bank’s shares and raising £3.2 billion in an overnight placing with investors.

RBS said yesterday it would not pay dividends until the first three months of 2017 at the earliest, later than many expected, because of its continued losses and mountain of legal disputes. The disclosure was interpreted as a move to be open with the market before the start of the government’s share sale.

Emphasising the scale of the challenge still ahead, Ross McEwan, the RBS chief executive, said it would be a “noisy” year. RBS took a £1.3 billion charge for legal and conduct costs in the first half of the year, including £459 million in the second quarter.

The bank highlighted its treatment of UK small and medium-sized business customers as one of the issues it needed to resolve and said it had taken a fresh £69 million provision in the second quarter for compensating businesses sold complex hedging products.

The bank had been “brain damaged” by the allegations that it mistreated struggling businesses that were put into its controversial Global Restructuring Division, Mr McEwan said.

RBS is bracing itself for a multibillion-pound bill to settle a series of US court cases over its sale of mortgage-backed securities. The bank is “not currently in settlement discussions” but hopes to start them in six to 12 months, according to Ewen Stevenson, the RBS finance director.

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