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Banks, Financial

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Categorized | Financial

Osborne ‘itching’ to start sale of RBS

Posted on July 31, 2015

A red London bus drives past an automated teller machine (ATM) outside a Royal Bank of Scotland Group Plc (RBS) bank branch in London, U.K., on Thursday, June 11, 2015. Chancellor of the Exchequer George Osborne said he'll start returning Royal Bank of Scotland Group Plc to private ownership in the coming months, even though it may cause a loss for U.K. taxpayers. Photographer: Simon Dawson/Bloomberg©Bloomberg

Senior City of London financiers say George Osborne is “desperate” and “itching” to start the first sale of government shares in Royal Bank of Scotland.

As they prepare to go on their holidays, there is even speculation the chancellor will pull the trigger next week, beginning the process of unloading the 80 per cent stake the government has held since bailing out the bank seven years ago.

    It would be a poignant moment in British banking history, unwinding the £45bn bailout of what was at the time the world’s largest bank by assets — the record for a taxpayer-funded rescue of a failing lender.

    However, there are significant political risks for Mr Osborne, who is wary of being branded the chancellor who crystallised a multibillion-pound loss for the taxpayer on Britain’s biggest privatisation.

    If the government does sell shares next week at a slight discount to RBS’s current share price of 340p, it would fall well short of the 502p per share its bailout cost.

    While advisers say the government is only expected to sell about £2bn-£3bn of its £32bn stake — most likely to institutional investors via an overnight accelerated bookbuilding process — it would still face some £14bn of losses on its overall stake.

    Politically, Mr Osborne has prepared the ground. In his Mansion House speech in June he said both the governor of the Bank of England and the financial advisory group Rothschild had told him that any delay in privatising RBS would be bad for the economy, the taxpayer and the bank itself.

    “Yes, we may get a lower price than Labour paid for it, but the longer we wait, the higher the price the economy will pay,” the chancellor said in his annual address to the City, in a reminder that RBS was saved by Gordon Brown, the former prime minister .

    Citing figures from Rothschild’s review, Mr Osborne said a sale at recent market prices would represent a net loss of about £7.2bn on the state’s shareholding, including many of the fees received by the government from RBS since its bailout.

    If all the government’s banking shares — including those dating back to the bailouts of Lloyds Banking Group, Northern Rock and Bradford & Bingley — were sold at recent market prices and all fees received from the banks were included it would add up to a £14bn profit for the taxpayer, according to Rothschild.

    The chancellor believes an impaired RBS has been a drag on economic recovery and has held back the lending needed to boost productivity. He admitted this year that one of his biggest regrets in the last parliament was not moving more quickly to restructure the bank.

    Since he said in June that he was ’responsible for getting the best deal now for the taxpayer’, RBS shares have dipped more than 4 per cent

    The Treasury does not comment on the timing of asset sales and said reports in the Times newspaper of a sale next week were speculation.

    There are reasons why Mr Osborne may yet decide to wait until September before starting to sell out of RBS. Since he said in June that he was “responsible for getting the best deal now for the taxpayer”, RBS shares have dipped more than 4 per cent. And doing a deal in August may be risky as market volumes can be lower with more investors away on holiday.

    The bank itself is also in the midst of a wrenching transformation, shedding many of its international operations and its investment bank to concentrate on being a more domestically focused retail and corporate lender. It has made seven consecutive years of losses and still faces the multibillion-pound costs of restructuring and fines for historic misconduct that are expected to weigh on its performance for at least another year.

    But on Thursday, RBS reported a return to the black with a net profit of £293m in the second quarter. It also published extra detail on its provisions for fines and litigation in a sign it is gearing up for a share sale.

    Bankers are confident there will be strong appetite from investors — including the likes of Artisan Partners, Schroders and BlackRock, which already hold stakes — to buy shares in the bank given its turnround potential.

    Ultimately, it is likely to be a snap decision whether to sell shares and one made by Mr Osborne, UK Financial Investments, the body responsible for the government’s banking stakes, and its advisers at Goldman Sachs.

    If they push the button, there is bound to be heavy scrutiny of Mr Osborne’s timing. But it will also mark an important milestone in RBS’s recovery from the crisis.

    Additional reporting by George Parker