George Osborne has attempted to justify a £1bn loss on the first sale of shares inRoyal Bank of Scotland by saying it was the right thing to do for the British taxpayer.
The chancellor sanctioned the first sale of the stake in RBS, which was announced on Monday night, in a move which cuts the taxpayer shareholding from 79% to just below 73%. Slightly more shares than expected were sold after the stock market closed on Monday, crystallising a loss for the taxpayer after £45bn was ploughed into the bank to rescue it amid the financial crisis in 2008-2009.
Some 60% of the shares were bought by hedge funds.
The £2.1bn of shares were sold at 300p – below the 337p at which they closed on Monday and less than the average 502p that the taxpayer paid for them. If all the shares were sold at this price, the loss would be £15bn.
Amid calls from Labour to justify the decision to sell, Osborne issued a statement in which he said: “This is an important first step in returning the bank to private ownership, which is the right thing to do for the taxpayer and for British businesses: it will promote financial stability, lead to a more competitive banking sector, and support the interests of the wider economy. Now is the time for RBS to rebuild itself as a commercial bank, no longer reliant on the state, but serving the working people of Britain.”
He did not speak publicly, leaving Treasury minister Harriett Baldwin to try to explain the sale at a time when the shares were at a low for the year.
Shadow chancellor Chris Leslie said the sale had been rushed, especially as the bank is awaiting a penalty in the US over the way it sold mortgage bonds before the crisis. That bill could reach as much as £8bn, according to some estimates.
“Getting back the taxpayers’ money is not an impossible objective and the chancellor is dismissing this too lightly,” said Leslie.
Ian Gordon, a banking analyst at the stockbroker Investec, said he was “perplexed” by the timing: “Last night’s disposal at 330p achieved a new 2015 low and arguably sold the taxpayer short.”
“This will likely be a subject of controversy for a while akin to the Gordon Brown sale of UK gold reserves 15 years ago,” said Brenda Kelly, head analyst, at brokers London Capital Group.
The Treasury published letters from UK Financial Investments, the body which looks after the taxpayer stakes in the bailed-out banks, and John Kingman, the second permanent secretary, who both recommended to the chancellor that the sale should begin. Kingman signed the letter in the absence of the most senior civil servant in the Treasury, Nick Macpherson.
Bankers working for the government sold 5.4% of the taxpayer stake – around 630m shares – rather than the expected 5.2% but could have sold more than double that amount because of the demand from institutions. Just under half were bought by investors in the UK and around 40% by US investors.
Osborne had signalled the sale after taking advice from bankers at Rothschild, who have calculated that the loss on RBS can be outweighed by profits on other bailed-out banks, such as the Lloyds Banking Group and Northern Rock.
Revealing the Rothschild recommendation at his Mansion House speech to the City in June, he said there would be £14.3bn profit made on the entire bailout programme, which Labour embarked on in 2008 and 2009 to stave off the collapse of the banking system.
Some three-quarters of RBS stake is earmarked for sale during the five years of this parliament.
The sale of Lloyds started two years ago and the government’s stake has now fallen from 42% to just under 14% after the latest disposal earlier this week.
Ross McEwan, chief executive of RBS, said the share sale was “an important moment” for the bank “and reflects the progress we are making to become a stronger, simpler and fairer bank”.
He added: “There is more work to be done but we’re determined to build a bank that the country can be proud of.”
The share sale has taken place just weeks before Sir Philip Hampton, appointed chairman at the height of the crisis, leaves to chair GlaxoSmithKline.
The shares were sold at 2.3% discount to the market price, a tighter range that the 3.1% discount at which the first tranche of Lloyds Banking Group shares were sold in September 2013.