Taxpayers lose £1.1bn on RBS shares sale

The Times

RBS has had a tumultuous recent history since Fred “the Shred” Goodwin quit in 2009 after the bank was nationalised   David Cheskin/PA
Royal Bank of Scotland’s share price hit its lowest level this year as the government confirmed that it had sold a little over 5 per cent of the lender at a loss of £1.1 billion to the taxpayer. Investment bankers hired by the Treasury sold 630 million shares in RBS at 330p, sparking accusations from opposition politicians, and even the City, that the taxpayer had been sold short.Yvette Cooper, the Labour leadership candidate, said the £2 billion offer of RBS shares had been “handled disastrously”, while Chris Leslie, the shadow chancellor, called the deal a “fire sale”.

“RBS had to be bailed out urgently, but it doesn’t have to be sold off at the same speed,” Mr Leslie said of the first offer of RBS shares since the bank’s £46 billion bailout seven years ago.

In a move likely to further infuriate the opposition, as well as investors, it appears that hedge funds made a quick profit at the taxpayer’s expense by betting against RBS shares last week, shortly before the government started selling down its stake. There was a steep rise in the number of RBS shares being sold short, which involves borrowing a stock to bet it will fall in value, between the bank’s interim results on Thursday and the government’s £2.1 billion sale on Monday night.

Shares in RBS fell in early trading yesterday, but closed up for the day at 339p, a rise of 0.41 per cent, valuing the bank at £22 billion.

The disposal by UK Financial Investments, the Treasury-run manager of the taxpayer’s holding in RBS and Lloyds Banking Group, is only the first of several expected over the next five years as George Osborne carries out his pledge to slash the state’s holding by three quarters.

“This is an important first step in returning the bank to private ownership, which is the right thing to do for the taxpayer and for British business,” the chancellor said. “While the easiest thing to do would be to duck the difficult decisions and leave RBS in state hands, the right thing to do for the ­economy and for taxpayers is to start selling off our stake.”

Ross McEwan, chief ­executive, said: “It’s an important ­moment and reflects the progress we are making to become a stronger, simpler and fairer bank.”

According to a source, the banks leading the sale had enough orders within two hours of the offer being made public to sell all the shares. The strong demand raises the likelihood of a further tranche of RBS shares being ­offered on the open market.

A second sale of a £4 billion chunk of the shares could come in the new year, after the publication of RBS’s 2015 financial ­results.

RBS faces several challenges that could dent its value, most obviously a multibillion-dollar fine for its alleged mis-sale of toxic mortgage-backed ­securities to investors. It is also in the midst of a second ­investigation into the practices of its turnaround division, which has been accused of putting profitable businesses into administration to help to bolster the lender’s own capital buffer. RBS denies the allegations.

How much did the taxpayer lose? The state’s original 81 per cent holding was acquired between late 2008 and over the course of 2009. The average “buy in” price for this £45.5 billion rescue was 504p. Based on the sale price of 330p, this equates to a loss of £1.1 billion.
Why sell now? RBS has not been a normal public company since its listing and will not be until the taxpayer’s stake is greatly reduced. Investors are reluctant to pay a higher price while they know the Treasury could flood the market with the stock, pushing down its value.
And the free float? Before this week’s sale, only 22 per cent of RBS’s shares were publicly traded, compared with more than three quarters of Lloyds shares. The RBS share price is more prone to be moved by smaller amounts of buying and selling.
Will RBS shares go up now? One analyst expects the shares to rise above 500p in the next 12 months. Others say they could fall. There is no certainty in either outcome, hence the government’s decision to get the process under way and hope for a better price further down the line.

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