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RBS sell-off announced by George Osborne in Mansion House speech

By Gavin Cordon

Published 10/06/2015

Chancellor of the Exchequer George Osborne RBS sell-off in his annual Mansion House speech
Chancellor of the Exchequer George Osborne RBS sell-off in his annual Mansion House speech

The Government is to begin selling off its majority stake in the bailed out Royal Bank of Scotland, Chancellor George Osborne has announced in his annual Mansion House speech.

Seven years after the global financial crash, the Mr Osborne said the "decision point" had been reached after an independent review concluded the losses to the taxpayer would be more than offset by the profits on other bank share sales - including its stake in the Lloyds Banking Group.

The move has been endorsed by Bank of England Governor Mark Carney who warned that delaying the start of the sale could lead to the taxpayer losing even more.

It comes after the then Labour government injected a total of £45.5 billion into RBS - taking a 79% stake in the bank - to prevent its collapse in the wake of the crash of 2008.

In the annual speech to the City, Mr Osborne said that the size of the Government's holding meant that the sell-off would take "some years" to complete.

While the complexity meant that the first offering - to take place in the coming months - would be to the financial institutions only, he said future disposals could include ordinary investors.

An independent review by Rothschild advised that if the RBS shares were sold in one go at their price on June 5 the loss to the taxpayer would be an estimated £7.2 billion.

However that compares with an estimated overall profit of more than £14 billion if all the Government's remaining bank shares were sold - as against a forecast loss of £20 to £50 billion at the time of the bail-outs.

Mr Osborne said: "In the coming months we will begin to sell our stake in RBS. It's the right thing to do for British businesses and British taxpayers.

"Yes, we may get a lower price than Labour paid for it. But the longer we wait, the higher the price the whole economy will pay.

"And when you take the banks in total, we're making sure taxpayers get back billions more than they were forced to put in.

"From bailing out the banks to bringing them back from the brink, now is the time for RBS to rebuild itself as a commercial bank no longer reliant on the state, but serving the working people of Britain."

In a letter to the Chancellor, Mr Carney said public ownership of RBS had "largely served its purpose" and that a "phased return" to private ownership would promote financial stability.

"Continued public ownership without a foreseeable end point runs risks including limiting RBS' future strategic options, and continuing the perception that taxpayers bear responsibility for RBS losses," he said.

"In these regards, there could be considerable net costs to taxpayers of further delaying the start of a sale."

In his address, Mr Osborne also outlined how the Government would use its re-negotiation of Britain's EU membership terms to ensure "fairness" for countries like the UK which remained outside the euro while preserving the integrity of the single market.

"We need a settlement that recognises that while the single currency is not for all, the single market and the European Union as a whole must work for all," he said.

"It's in our interests that the euro is a successful, strong currency. So we're prepared to support the eurozone as it undertakes the further integration it needs.

"But in return, we want a settlement between the UK and the eurozone that protects the single market and is stable, fair and lasts."

The sell-off of RBS shares was welcomed by the bank's chief executive Ross McEwan.

"We are pushing ahead with our strategy to build a simpler, stronger, fairer bank that is totally focused on the needs of its customers and centred here in the UK," he said.

"When the Government starts selling its shareholding, it will be selling a bank determined to be the best in the country."

SNP spokesman on the economy, Stewart Hosie said: "George Osborne should have made this announcement to the House of Commons, not at a dinner in London.

"The Chancellor's main concern should be providing a good deal for the public and ensuring taxpayers receive what they are owed."

Further reading

Government to sell Royal Mail stake

Carney sets out tough new rules for markets  

Bilderberg 2015: George Osborne and Ed Balls attend meeting of global elite in Austria  

IMF data shows Iceland's economy recovered after it imprisoned bankers and let banks go bust - instead of bailing them out

Milestone for RBS

By John-Paul Ford Rojas

George Osborne's announcement on plans to start selling the taxpayer stake in Royal Bank of Scotland marks a watershed moment for the bank after it was rescued by taxpayers seven years ago.

The Treasury poured nearly £46 billion into the lender to save it from near-collapse at the start of the financial crisis and now owns 79% of the group.

It has undergone major restructuring under chief executives Stephen Hester and now Ross McEwan, who is trying to shrink the group to focus on the UK.

But its attempt to return to a more normal business rather than one propped up by the taxpayer has been dogged by the legacy of misconduct of years gone by, as well as an outcry over its treatment of small businesses and claims of political interference.

It has also set aside billions to create an internal "bad bank" to hive off toxic loans.

The bank has reported a succession of swingeing annual losses, and was in the red by £3.5 billion for last year, taking accumulated losses since the bail-out to nearly £50 billion, exceeding the cash that has been put in by the Treasury.

RBS's market value today is around £23 billion, half the amount of the bail-out.

Its difficulties have hampered any progress in trying to return the business to private hands, with the share price at around 350p today well off the break-even price of 500p that would be needed for the Government to recoup its investment.

RBS lags behind fellow bailed-out bank Lloyds, which has seen its Treasury stake cut from 43% to under 18% and the taxpayer paid back more than half of the £20.5 billion that has been put into it.

Research by the New Economics Foundation, an independent think-tank, claims that plans to sell off the RBS taxpayer stake would result in a total loss to the taxpayer of between £13 billion and £26 billion.

It described sell-off plans as the "reckless fire-sale of a vital economic asset".

However, analysis by Bank of America Merrill Lynch has found that taking into account £5 billion of fees and repayments made already as part of the bail-out takes the break-even price to 455p.

It is further suggested that if the start of a sale in stages prompts the share price to rise so that it averages out at the break-even by the end of the process, value for money could be achieved with the stock beginning to be sold off at as low as 360p.

The Chancellor signalled in January that early in this Parliament "we will have to make a decision on the timing of any exit programme from RBS".

Mr McEwan has previously stressed that the timing of a shares sale would be a matter for the Government, as he strives to simplify the business and make it a more UK-focused lender centred on retail and commercial banking.

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