Government sells off 7.7% RBS stake at £2.1 billion loss but it could get 10 times worse
The Government has sold a 7.7% stake in Royal Bank of Scotland at a £2.1 billion loss to the UK taxpayer - but that figure is set to balloon ten fold in the next five years.
UK Government Investments (UKGI) confirmed the “successful completion” of the disposal at a placement price of 271p per share.
The sale of around 925 million shares will bring the public holding in RBS down from approximately 70.1% to 62.4%, resulting in proceeds of £2.5 billion.
It comes at a £2.1 billion loss to the UK taxpayer, with the Government having paid an average of 502p per share during its bailout of RBS during the financial crisis.
That loss is expected to grow to around £26.2 billion as the Government hopes to have sold off around two-thirds of its stake by 2023.
The Government bought its stake in the bank for £45 billion in 2008 as part of a bailout at the height of the financial crisis.
This week’s share sale is the first time that Government holdings in RBS have been offloaded since 2015.
RBS chief executive Ross McEwan said: “I am pleased that the Government has decided the time is now right to restart the share sale process.
“This is an important moment for RBS and an important step in returning the bank to private ownership.
“It also reflects the progress we have made in building a much simpler, safer bank that is focused on delivering for its customers and its shareholders.”
Chancellor Philip Hammond said the sale was also a “significant step” in “putting the financial crisis behind us”.
“The Government should not be in the business of owning banks. The proceeds of this sale will go towards reducing our national debt – this is the right thing to do for taxpayers as we build an economy that is fit for the future.”
RBS shares slumped in the wake of the news, falling more than 3.8% at the start of trading.
The share sale – confirmed on Monday – had been widely expected after RBS reached a 4.9 billion US dollar (£3.6 billion) settlement with US regulators last month over allegations that it missold mortgage-backed securities in the run-up to the financial crisis.
The settlement removed a major hurdle to the bank’s return to private hands, but the timing of the sale has still raised eyebrows.
Only last week, RBS’s outgoing finance chief Ewen Stevenson said the recent slump in European stocks – sparked in part by jitters over the rise of Eurosceptic parties in Italy – might be a cause for pause for the Government.
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Michael Hewson, chief market analyst at CMC Markets UK, said the share sale restart was “always going to be controversial”, but added that it “probably needs to be measured against what the economic cost might have been if the bank had been allowed to fail”.
“Given the current size of the bank relative to its size 10 years ago, the bank’s ability to generate the type of profits required to justify a return to its breakeven price is going to be extremely difficult if not next to impossible to achieve,” he added.
“Ultimately taxpayers and politicians of whatever persuasion need to ask themselves if a £2 billion to £3 billion loss on this particular stake is a price worth paying for a smaller, safer bank, as well as banking system, with the upside that the billions of pound it unlocks can be better used for things like the NHS, and other public services.”