What does Government sale of RBS stake mean for investors?
The government is taking a hit by selling down some of its RBS shares
Shares in Royal Bank of Scotland (RBS) are under pressure after the UK Government sold part of its holding in the bank, but it could ultimately prove an important step in the company’s rehabilitation.
Long suffering shareholders in RBS are having an interesting year. The bank finally settled with the US Department of Justice, agreeing to pay a £3.6bn fine for mis-selling mortgage-backed securities in the run-up to the 2008 financial crisis.
This deal cleared the way for the Government to start selling its 70.1% stake in the bank and on 5 June it confirmed the sale of 920m shares, or 7.7% of the bank.
This crystallises around a £2bn loss for the UK taxpayer as the shares were sold at 271p. This is well below the 500p per share entry point at the height of the financial crisis.
Joseph Dickerson, analyst at investment bank
Jefferies, says the move is a ‘positive liquidity event’ for RBS shares and one step on the path to ‘value creation’.
He says the next step to creating value will be the announcement of an ordinary dividend this year, share buybacks in 2019 and the re-deployment of excess liquidity between now and 2020. Dickerson is a buyer of RBS with a bullish price target of 423p. (DS)