The government has sold a 5.4 per cent stake in RBS for 330p a share – £2.1bn.
The original stake was bought for 502p a share, and Labour and the Greens say this amounts to a massive loss for the taxpayer – around £1bn overnight. The government says it was necessary for the economy.
So who is right? Was it £1bn loss or an astute financial decision in an uncertain market?
by Georgia Graham
“He said he’d only sell these RBS shares when we get good value. Clearly that’s not now. We’ve possibly lost £1bn overnight.”
Barbara Keeley, Labour shadow Treasury minister, 4 August 2015
Has the government lost a billion overnight?
The shares were sold with a 2.3 per cent discount on the closing share price of 337.6p. 5.4 per cent of government shares were sold – around 630 million shares – at around 330p a share.
This will have earned the Treasury £2.79bn.
When the government bailed out the banks in 2008/9 these shares were bought for around 502p.
The 172p difference represents a loss of about £1.07bn on the shares sold. If they sold their entire stake at this price it would represent a £15bn loss for the bank.
This discount meant that the 330p share price offered to investors is a market low for this year.
Labour and the Green party say this represents a loss of £1bn. This is predicated on selling the shares at the 502p share price they were bought for by Alistair Darling in 2008.
However others argue that the government’s rescue of the bank – and the purchase of share prices at 502p was to prevent further damage to the economy. It was not part of the plan at the time to turn a profit on the shares.
Sir Philip Hamiliton, who is stepping down as the chairman of the bank, has told the FT that the sale represented the beginning of a process of “normalising”.
The Conservatives say that the sale will boost both liquidity and demand for sales. Both the Bank of England Governor Mark Carney and official Treasury advisers Rothschild said in June it was now time for the government to begin the sale.
However 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,” he said.
When should they have sold?
A 5.4 per cent stake at around 330p a share. This was around 630m shares and raised £2.1bn.
This is far below the government bailout price of 502p, but it is also below more recent highs.
As recently as February RBS was trading above 400p – which would have netted the government closer to £2.4bn for its shares.
If the government had sold 600 million shares at the top of the market in May when prices were hovering around 400p a share, it would have made over £2.4bn for the taxpayer.
Even as recently as last month shares were as high as 359p. This would have made the Treasury around £2.26bn.
How much does the government own?
The taxpayer owned 78 per cent of RBS.
It has just sold 5.4 per cent of this stake, about 630 million shares, to institutional investors after the market closed on Monday, leaving just under 75 per cent in government hands.
At current prices this stake is worth £30bn, after £2bn was raised by the sale of the shares.
However in 2008 £45bn of taxpayers’ money was spent bailing it out.
Crucially, though, this sale means the government has less power over the bank – and this may attract investors.
If you own 75 per cent of the shares you can pass a special resolution, which allows you to change things about the company, even if the other shareholders object. The government now owns just under 73 per cent.
Can they still make a profit overall?
Yes, but everything is uncertain with RBS.
The government still owns a large stake in the bank, so technically a £1bn loss is not particularly significant overall. If the share prices recover and are boosted by this initial sale, as the government says they will be, it is technically possible taxpayers could make an overall profit on the sale. But they would have to sell RBS shares for over 502p a share.
The government hope that this early sale will help stimulate demand and raise share prices.
However RBS still faces serious obstacles to such an increase in its share value. It is expected to be handed a huge fine in America for mis-selling sub-prime mortgages before the financial crisis.
The bank has already put aside £1.9bn for the bill, but analyst suggest the final bill could top £5bn.
Did they manage to make a profit on Lloyds?
Two years ago the chancellor began selling the government’s stake in Lloyds almost immediately.
Taxpayers now own less than 14 per cent of the bank. During the financial crisis the government bought a 41 per cent stake in the bank for around £20.5bn.
This gave him the opportunity to crow over Labour and claim economic credibility over fixing the banking crisis and allowing him to claim he had made a profit for the state coffers.
If he is to be judged by these same markers on RBS, he has so far failed. While Lloyds has won over investors with a relatively fast recovery, the turnaround at RBS has been plagued with setbacks.
Are we down overall on the bailout?
If the government sells the rest of its 73 per cent stake, that would represent a £15bn loss overall for the sale.
The Treasury says that overall the government has now recouped £14bn than it spent on the bailout – a figure which will now be reduced to £13bn, and could be reduced further.
If all the shares of RBS were sold for 330p, this profit would be entirely wiped out.
The government does still own 14 per cent of its original stake in Lloyds and has sold every share at a profit on what they were bought for – so this could offer some respite.
However, as previous a FactCheck has shown, the government didn’t just have 100-odd billion sloshing around to bail out the banks. It had to borrow the money. It did so by issuing interest-bearing government bonds called gilts.
So the Treasury has been paying out interest to investors on the gilts for about seven years now, which makes the balance sheet a little more complicated.