A Royal Bank Of Scotland (RBS) plan to buy back more than £1 billion worth of its own shares from the government could mean the British taxpayer losing millions of pounds.
RBS has called a special meeting of its shareholders early next month to discuss using some of its ‘excess cash’ to buy back the shares bought by the government in its £45.5 billion bailout in 2008 at the height of the financial crisis.
The government bought billions of shares to save the bank from collapse and ended up with an 84% stake.
That figure has been reduced to 62.3% after several attempts by the government to sell off shares to institutional investors at a combined £3 billion loss on their original purchase price.
The shares were bought for 502 pence each in 2008 and are currently trading at less than half that value – 237 pence.
Now the bank is to ask its shareholders for permission to buy back up to 4.99% of the outstanding shares for an estimated £1.4 billion.
The board needs 75% of the votes cast for its plan to go ahead. The government will not be taking part.
Experts say the bank has been looking for ways to use the estimated £4 billion cash it was left with after settling a long-running legal dispute with US regulators over the sale of toxic mortgage deals just before the financial crisis broke.
RBS chairman Sir Howard Davies said: “This resolution would provide the bank with the flexibility to use some of its excess capital to buy back government shares at a time and price agreed with HM Treasury.
“The board believes that this is in the best interests of the bank and its shareholders by helping to facilitate the return of the company to full private ownership.”
A Treasury spokesperson said: “The government should not be in the business of owning banks, which is why we’re committed to returning RBS back to private ownership.
But we will only sell RBS shares when it represents value for money to do so.
“If passed, the vote announced today does not commit us to sell shares in any one way and we keep all options open.”
Entire public stake
The government is committed to selling the entire public stake in RBS by the end of 2024 at a potential loss projected by the Office for Budget Responsibility of £28.5 billion – more than half what the original bail out cost.
Chancellor of the Exchequer Philip Hammond previously warned Parliament that it is unlikely he will be able to recoup all of the bail-out cash, but would try ‘to achieve 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.”