Chancellor George Osborne has announced that the government will begin to sell off its stake in the Royal Bank of Scotland, following independent advice from the governor of the Bank of England and from a review by Rothschild.
In his annual Mansion House speech yesterday evening (10 June), George Osborne stated that the “decision point” had been reached, which means that sales of the taxpayer’s stake in RBS will begin in the coming months, despite the fact they would currently be sold at a substantial loss.
In letters published between BOE governor Mark Carney and the chancellor, the former stated that it is in the public interest for RBS to be returned to private ownership, as this will “promote financial stability, a more competitive banking sector, and the interests of the wider economy”.
Mr Carney also cited “considerable net costs to taxpayers of further delaying the start of a sale” in order to wait for shares to return to the 503p buy-in price, which many believe they will not recover. They are currently at 359p, having risen by more than 1 per cent in early trading.
The Rothschild report advised that in order to get maximum value from the sale of the whole of stake in RBS, it is in the interest of taxpayers for the government to begin an initial disposal of shares as market conditions for financial assets are currently good.
It detailed that at the share price as at 5 June 2015 taxpayers would get back over £14bn more than they put in across all banking bail out investments.
An estimated loss of £7.2bn to the taxpayer from RBS, if the government sold its remaining shares in the bank in one go at the share price as at 5 June, would be much more than offset by proceeds from other interventions, for example on shares in Lloyds.
“Yes, we may get a lower price than that was paid for it – but we will get the best price possible. For the longer we wait, the higher the price the whole economy will pay,” Mr Osborne stated.
The chancellor indicated that given RBS’s complex investment case, sales will need to start with institutions, but added that there is no reason ordinary investors should not be involved in due course indicating a potential discounted retail offer which is being prepared for Lloyds.
He also used the speech to confirm the government’s plans to implement a “strong new fiscal framework” committing the country to a permanent surplus.
“This fiscal framework will be voted on by the House of Commons later this year, and assessed by the Office for Budget Responsibility we created,” he said, adding that “we must act now to fix the roof while the sun is shining”.
Mr Osborne also noted the final publication of the Fair and Effective Markets Review into misconduct in fixed income and foreign exchange markets. He took the opportunity to outline a tougher stance on those found guilty of such misconduct.
“The governor and I agree: individuals who fraudulently manipulate markets and commit financial crime should be treated like the criminals they are – and they will be,” the chancellor stated.
“For let us be clear: there is no trade-off between high standards of conduct and competitiveness - far from it - implementing the reforms set out in this review will ensure trust in our markets and strengthen London’s global leadership position.”
Mr Osborne also announced the first sale of the government’s remaining stake in the Royal Mail, with half of the 30 per cent stake gone at a price of 500 pence per share, raising £750m.
peter.walker@ft.com
