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Treasury sells 5.4% share in RBS for £1bn loss

Published 04/08/2015

The Treasury has begun selling its 79% holding in RBS
The Treasury has begun selling its 79% holding in RBS

Chancellor George Osborne has fired the starting gun on returning Royal Bank of Scotland into private hands with a £2.1 billion share sale, but faced criticism the taxpayer has been left short-changed after making a £1 billion loss.

Mr Osborne insisted the move was the "right thing to do for the taxpayer", coming seven years after the Government rescued RBS with a £45.5 billion bailout at the height of the financial crisis.

It marks a milestone moment for the banking sector as it puts the crisis behind it, while it also kick-starts the Treasury's plans for a bigger privatisation programme than in the 1980s with aims to raise more than £30 billion by the end of next March.

But concerns have been raised over the timing of the Treasury's decision to sell-down its 78% stake in RBS after the taxpayer has been left nursing a £1.08 billion loss.

UK Financial Investments (UKFI), the body that holds the Government's RBS stake, said it offloaded 5.4% of RBS at 330p a share overnight - far short of the average 502p price paid at the time of the bailout.

Labour questioned the Government's "rush to begin the sell-off" of RBS shares.

Shadow chancellor Chris Leslie said: "Taxpayers who bailed out RBS and who have now lost out will want to know why the Government has sold these shares at a discount and while the bank is still awaiting a US settlement for the mis-selling of subprime mortgages.

"Getting back the taxpayers' money is not an impossible objective and the Chancellor is dismissing this too lightly."

Mr Osborne defended the move, saying RBS needed to be returned to the private sector for the benefit of the economy and to help the bank rebuild itself.

He said: "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 businesses: it will promote financial stability, lead to a more competitive banking sector, and support the interests of the wider economy.

"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," he said.

He added in a tweet : " RBS bailed out by last gov. This gov is selling it back. Bank of England Governor says selling now is in 'interests of the wider economy'."

The move has reduced the Government's stake in the group from 78.3% to around 72.9% and the £2.1 billion raised will be used to pay down Britain's national debt.

A previous report by investment bank Rothschild said that if all of the Government's stake was sold at current prices, the taxpayer would lose around £7 billion, although some experts estimate the loss could be as much as £15 billion.

However, UKFI estimates that the RBS share price will rise as the firm returns to health and more stock is sold to the market.

Michael Hewson, chief market analyst at CMC Markets, said the timing was surprising given that markets are fairly quiet and RBS shares were worth more than 400p less than six months ago.

But he said it was unlikely the Government would ever have recouped all of its money back for bailing out RBS.

He said: "Waiting and hoping for a distressed asset to come back into break even territory is no way to generate the best return.

"Better to free up the capital in the coming weeks and months and put it to better use."

The Institute of Economic Affairs (IEA) agreed the Government would have gained little by holding on to shares.

Mark Littlewood, director general at the IEA, said: "Even if sold at a loss, both the taxpayer and the bank have nothing to gain from the Government holding on to its shares in RBS.

"Waiting for the share price to rise will further postpone a process that should have started long ago."

The Government plans to sell around three-quarters of its holding in RBS by the end of the current five-year Parliament.

The first share sale comes after RBS last week reported better-than-expected figures for the first half of 2015.

While it swung into the red with interim losses of £153 million after taking a £1.3 billion hit for banking scandals, the bank's second quarter figures suggested an improving picture, with attributable profits for the three months of £293 million - up 27% year-on-year.

Ross McEwan, chief executive of RBS, said: "I'm pleased the Government has started to sell down its stake.

"It's an important moment and reflects the progress we are making to become a stronger, simpler and fairer bank.

"There is more work to be done but we're determined to build a bank the country can be proud of."

But on unveiling results last week, Mr McEwan warned over a "noisy" year as RBS braces itself for hefty settlement costs in the US amid allegations that the group misled investors over the quality of mortgage backed securities sold in America in the run up to the financial crisis.

Investment banks Citigroup, Goldman Sachs, Morgan Stanley and UBS led yesterday's share sale to institutional investors.

The Government also yesterday sold a further 1% stake in Lloyds Banking Group, reducing its stake to just under 14%.

But the Government is making a small profit on the sale of its stake in Lloyds, which has recovered faster than its state-backed rival RBS.

During the financial crisis, the Government paid more than £45 billion bailing out RBS and at one stage owned more than 80% of the lender, while it also pumped £20.5 billion into Lloyds, taking a 41% stake.

As well as the sale of shares in state-backed banks, the Government also aims to complete the sale of its 14% stake in Royal Mail by the end of 2015/16, offload a ssets from the nationalisation of Bradford & Bingley and Northern Rock and possibly move its Green Investment Bank into private ownership.

The total planned sale of assets is expected to raise £31 billion for 2015/16 - the largest proceeds from privatisation in a single year, more than £10 billion higher in real terms than the previous record in 1987/88.

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