UK takes £1 bil­lion hit in RBS sell-off

The Pak Banker - - COMPANIES/BOSS -

Bri­tain took a 1.1 bil­lion pound ($1.7 bil­lion) loss on its first sale of shares in Royal Bank of Scot­land on Tues­day, spark­ing ac­cu­sa­tions of poor tim­ing from op­po­si­tion politi­cians.

The UK gov­ern­ment sold a 5.4 per­cent stake in RBS at 330 pence per share, a third be­low the price paid when Bri­tain res­cued the bank with 45.8 bil­lion pounds of tax­payer cash at the peak of the 2007/09 fi­nan­cial cri­sis. The move raised 2.1 bil­lion pounds and is ex­pected to be fol­lowed by sev­eral more sales. Over­all, the gov­ern­ment is sit­ting on a 15 bil­lion pound loss on its hold­ing, based on the cur­rent stock price and its av­er­age pur­chase price of 502 pence.

But the sale was more about start­ing the process of re­turn­ing RBS to the pri­vate sec­tor and show­ing in­vestors the gov­ern­ment is re­duc­ing its in­ter­fer­ence in the bank, rather than avoid­ing a loss, peo­ple fa­mil­iar with the de­ci­sion told media. "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," Fi­nance Min­is­ter Ge­orge Os­borne said.

But the op­po­si­tion Labour Party slammed the sale. "RBS had to be bailed out ur­gently, but it doesn't have to be sold off at the same speed," said Chris Les­lie, its fi­nance spokesman.

"The Chan­cel­lor (Os­borne) needs to jus­tify his haste in selling off a chunk of RBS while the bank is still await­ing a U.S. set­tle­ment for the mis-selling of sub-prime mort­gages," Les­lie added, re­fer­ring to a po­ten­tially mas­sive fine from U.S. author­i­ties, re­lated to RBS's past sales of U.S. mort­gages.

RBS has set aside 2.1 bil­lion pounds for a set­tle­ment but an­a­lysts es­ti­mate it could cost as much as 9 bil­lion pounds, which has weighed on the stock.

The share sale, which cuts taxpayers' hold­ing to 72.9 per­cent from 78.3 per­cent, marks a mile­stone in Bri­tain's re­cov­ery from the fi­nan­cial cri­sis, and is part of Os­borne's strat­egy to im­prove the coun­try's fi­nances.

The move had been on the cards since Os­borne in June ac­cel­er­ated the timetable for selling RBS, af­ter his Con­ser­va­tive Party won May's na­tional elec­tion with a sur­prise ma­jor­ity, giv­ing his party more power in gov­ern­ment.

He has lost no time since then in press­ing on with his plans for Bri­tain's econ­omy, in­clud­ing the sale of more shares in Lloyds Bank­ing Group (LLOY.L) and a bud­get that in­cluded a shift away from wel­fare spend­ing to higher wages for work­ers.

Os­borne aims to sell at least three quar­ters of its RBS hold­ing, cur­rently worth about 25 bil­lion pounds, in the next five years.

UK Fi­nan­cial In­vest­ments (UKFI), the body that holds the stake, said it sold 630 mil­lion shares in a quick-fire sale to in­sti­tu­tional in­vestors af­ter the mar­ket closed on Mon­day, slightly more than it had planned to sell.

The sources said other ben­e­fits of the sale are that it in­creases liq­uid­ity in the stock and shows there is in­vestor ap­petite, par­tic­u­larly in Bri­tain and the United States, which ac­counted for 85 per­cent of de­mand, one source said.

More and big­ger sales to in­sti­tu­tions are likely, but UKFI could also opt for a trad­ing plan that in­volves small fre­quent sales in the mar­ket, or a sale to re­tail in­vestors.

The 2.3 per­cent dis­count to RBS's clos­ing price on Mon­day, at which the shares were sold, was nar­rower than the 3.1 per­cent dis­count on the gov­ern­ment's first sale of Lloyds shares in Septem­ber 2013.

At 1215 GMT, RBS shares were down 0.9 per­cent at 334.7 pence, out­per­form­ing a weak Euro­pean bank­ing in­dex .SX7P.

In­vestors put in bids for 2.4 times more than the num­ber of RBS shares sold by the gov­ern­ment, a per­son fa­mil­iar with the mat­ter said.

RBS CEO Ross McEwan said he was pleased the sell-down had be­gun, adding it re­flected the progress the bank had made "to be­come a stronger, sim­pler and fairer bank".

RBS was briefly the world's big­gest bank by as­sets, but has more than halved its as­sets and the size of its in­vest­ment bank and sold busi­nesses around the world.

Bri­tain has sold down its stake in Lloyds at a profit over the past two years and now holds less than 14 per­cent. The tax­payer could make at least 2 bil­lion pounds on the Lloyds bailout, also at the height of the fi­nan­cial cri­sis.

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