Chancellor Philip Hammond has admitted that the government could face a multi-billion pound loss by selling off its 73% stake in the Royal Bank Of Scotland (RBS).
Mr Hammond has told MPs that ‘we have to live in the real world’ in returning the taxpayer-owned bank to private ownership.
RBS was bailed out at the height of the 2008-09 financial crisis when the then Labour government poured in £45 billion of taxpayers’ money to save the Edinburgh based bank.
Shares were bought at 502p each and are currently trading at less than half of that price – 224p.
The government had previously stated it did not expect to sell off its stake in the bank until 2020, but now Chancellor Hammond has told the House of Commons that he was aiming to re-privatise RBS ‘as soon as possible’ while achieving ‘fair value.’
He said: “We have to live in the real world and make decisions on the future of our holding in RBS in the best interests of taxpayers.”
World’s biggest bank
Just before the financial crisis broke RBS was the world’s biggest bank with a balance sheet of £2.4 trillion.
Since then it has made losses for nine years in a row, reporting a £7 billion loss for 2016 to take its overall losses since the financial crash to £58 billion.
Mr Hammond said: “The government is not at present actively marketing its stake in RBS. Our policy remains to return the bank to private hands as soon as we can achieve fair value for the shares, recognising that fair value could well be below what the previous government paid for them.”
RBS chief executive, Ross McEwan, said in February that he expected RBS to return to profit in 2018.
Two main obstacles stand in the way of any attempt to re-privatise RBS.
The bank still faces multiple lawsuits in America concerning the mis-selling of mortgage backed securities (MBS). Settlements between the US Department of Justice and other world banks have been for billions of dollars – Deutsche Bank settled for $7.2 billion and Credit Suisse for $5.3 billion.
It is understood that RBS sold $32.1 billion worth of MBS – more than Deutsche Bank and Credit Suisse combined – and some experts believe their settlement will be somewhere between $12 billion and $20 billion.
Williams & Glyn
The other problem is what will happen to the bank’s Williams & Glyn brand. European Commission regulations governing the 2008 bailout requires RBS to divest itself of 314 branches.
The bank has struggled to find a buyer so far, but recent moves by the government may allow them to keep the branches in favour of a four point plan under discussion with EC officials.
The plan, which still has to be ratified by the Commission, calls for:
- A fund, administered by an independent body, which challenger banks can access to increase their business banking capabilities.
- Funding for eligible challenger banks to help them woo SMEs to switch their accounts from RBS.
- RBS granting business customers of eligible challenger banks access to its branch network for cash and cheque handling.
- An independent fund to invest in financial technology firms.
The contrast between the RBS sale and that of the UK’s other taxpayer-owned bank, Lloyds, could not be more marked.
Industry experts believe the re-privatisation of Lloyds Banking Group (LBG) – which also includes Halifax and Bank Of Scotland – is likely to be completed within the next couple of months with the government, recouping all of the £20.3 billion used to buy a 43% stake.
The government stake has been reduced to less than 2% and commentators expect the sale to be complete by mid May.