Taxpayer loses £2.1bn after government sells 7.7% of RBS holding

The government has sold a 7.7 per cent stake in Royal Bank of Scotland – at a £2.1 billion loss to the UK taxpayer.

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 about 70.1 per cent to 62.4 per cent, with proceeds of £2.5bn. It comes at a £2.1bn loss to the UK taxpayer, with the government having paid an average of 502p per share during its bailout of RBS. The total loss is expected to hit around £26.2bn. The government hopes to have sold around two-thirds of its stake by 2023.

The government bought its stake in the bank for £45bn 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”.

He said: “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, ending the day 5.3 per cent lower.

The share sale had been widely expected after RBS reached a $4.9bn (about £3.6bn) settlement with US regulators last month over allegations it mis-sold 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 cause the government to pause.

Michael Hewson, chief market analyst at CMC Markets UK, said the share sale restart was “always going to be controversial”, but added it “probably needs to be measured against what the economic cost might have been if the

Of all the dark moments following the demise of Royal Bank of Scotland, one in particular for me stands out. Five years after the debacle, senior board members gave an update to shareholders on the bank’s “recovery”.

An investor asked when the board thought the shares would recover. Sir Sandy Crombie, chairman at the time, rose to his feet. “It is highly unlikely”, he declared, that the shares would recover in the lifetime of the audience – “if ever”.

A numb silence followed. Few had imagined a return to the heady pre-crisis days when the shares changed hands at 7,000p-plus. Tens of

0 The government spent £45bn on bailing out RBS during the financial crisis of 2008 bank had been allowed to fail”.

He said: “Given the current size of the bank relative to its size ten years ago, the bank’s ability to generate the type of profits required to justify a return to its break-even price is going to be extremely difficult, if not next to impossible to achieve.

“Ultimately taxpayers and politicians of whatever persuasion need to ask themselves if a £2bn to £3bn 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 pounds it unlocks can be better used for things like the NHS, and other public services.” thousands of shareholders suffered appalling losses. But the verdict brought home a final, crushing finality. There was to be no steady recovery, no gradual uphill climb, and certainly not a bounce-back to that incredible era.

Now the penny has finally dropped for the government and for taxpayers. Yesterday the former sold 7.7 per cent of its 70.1 per cent shareholding at 271p a share – almost half the 502p a share paid in the dramatic government bailout a decade ago. The loss realised was £2.1 billion.

Little wonder there has been an outcry. A scandalous loss of taxpayer money! Why did the government have to sell now? Why could it not

£80

£70

£60

£50

£40

£30

£20

£10

0

‘Reality has to be faced. The bank has shrunk … Assets and earnings have been scythed’

have held on? But time has not mitigated the damage.

On the contrary. The last time the government cut its stake in RBS was in 2015, when it sold 5.4 per cent of its holding at a price of 330p a share. That was a swingeing loss then. How much worse now, three years later with the share price 59p lower.

No investor ever likes realising a loss – and the government, in the full glare of publicity, is no exception.

But reality has to be faced. The bank has shrunk massively. Divisions have been sold and thousands of jobs have gone. RBS has gone from operating in 38 countries to nine. Assets and earnings have been scythed.

Second, the shares are trapped in a box. Few investors like buying and holding shares in a company where the state is the largest investor. And as long as the government remains a dominant investor – its stake in RBS is still 62.4 per cent – investors will view that as a negative overhang on the price.

Third, RBS is now largely out of the mire. It has settled a US Department of Justice penalty at a cost of $4.9 billion (about £3.6bn), notably less than feared. In February, it reported an annual profit of £752 million – its first for a decade. The government has no desire to hang on to shares in a publicly-quoted bank any longer than necessary.

Finally, it made well have made a calculation that the immediate spasm of criticism is worth the political benefit of having more money in the Treasury coffers, faced as it is with spending demands on so many fronts.

And the job is done. The loss on sale shrinks before the massive damage that would have been inflicted on the economy overall had there not been a rescue back in 2008. Allowing the bank to fail would have triggered a severe recession – and far worse pain.

There’s a three-word piece of advice on taking the loss on a share. If you want to make good and move on, here it is: “Never look back.”