‘Don’t sell RBS off on cheap like gold’

THE Treasury risks repeating Gordon Brown’s disastrous decision to offload the UK’s gold reserves if it sells off Royal Bank of Scotland on the cheap, analysts warned last night.

More than £430m was added to the state-backed lender’s value yesterday after the Chancellor fired the starting pistol on its re-privatisation. The share price jumped 6.7p to 361.5p.

One analyst said George Osborne had ‘whetted the appetite’ of investors after signalling in his Mansion House speech on Wednesday night that the Government would soon start selling off shares in the bailedout bank at a loss.

But others warned that Osborne’s decision to push the button was ‘premature’ – with shares well below the break- even price of £5 paid during its £45.5bn bailout.

A report by Rothschild – which gave the green light to the Chancellor – said selling the Government’s 80pc stake in one go would result in a £7.2bn loss for taxpayers, based on the 357p closing price on June 5.

But the investment bank, which was commissioned to assess what the Treasury should do with RBS, said taxpayers could make a £14bn profit overall if the Government sells off its remaining 17.9pc stake in Lloyds on the same basis. This includes billions of pounds in fees paid by the two banks to the Government.

Gary Greenwood, from Shore Capital, said Osborne was right to accept that he would not get back the £45.5bn pumped into RBS by the Labour government.

But he suggested that the Chancellor also was in danger of making the same mistake as Gordon Brown when he sold almost 60pc of Britain’s gold reserves at a rock-bottom price between 1999 and 2002. This is estimated to have cost the taxpayer up to £12.4bn as the price of gold has soared.

The Coalition was also criticised for selling off Royal Mail on the cheap at huge cost to taxpayers.

Greenwood said: ‘ My biggest worry is if the shares are sold off – and then go up massively we may end up with a repeat of the gold reserves-post office scenario if the gap is embarrassingly big.’

The Chancellor has been advised by Rothschild that offloading a chunk of Royal Bank of Scotland shares to institutional investors at a l oss could help to generate demand and boost its share price for further disposals.

However, Ian Gordon, f rom Investec, said an imminent share sale would be ‘premature’ and ‘dictated more by politics rather than, necessarily, an exercise in optimising market timing’.

He added: ‘Although we do forecast moderate share price appreciation, we do not entirely agree with the Rothschild view, and suspect that some investors may see it as encouragement to keep their powder dry ahead of the promised institutional share offering.’

Yesterday, the chairman of the Treasury Select Committee also questioned Rothschild’s calculation that taxpayers would make a £14bn profit.

Andrew Tyrie pointed out the proposed deal does not include the interest paid by the Government when it borrowed money to rescue the stricken lenders. However, a Treasury spokesman said: ‘The methodology used by Rothschild is the same as that used by the independent Office of Budget Responsibility in their analysis of the Government’s interventions in the banking sector, and by the US Treasury.’

The disposal of RBS is expected to take years. It is thought the public will get the chance to buy shares at a discount in a repeat of BT’s privatisation in 1984.

Brenda Kelly, head analyst at London Capital Group, said: ‘Investor interest has been whett ed and should t he present momentum continue we may see a return to 380p.’