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| Philip Hammond jumps the gun with RBS shares sale | Philip Hammond jumps the gun with RBS shares sale |
| (6 months later) | |
| A thumping £2.1bn loss on the sale of a 7.7% slug of Royal Bank of Scotland shares hurts, but let’s not pretend there was a realistic prospect of making a profit for the public purse. Nor is it really correct to view the numbers through a conventional investment lens. The state’s original purchase of an 83% stake in a two-stage bailout in 2008 and 2009 was not primarily done to make money. It was an emergency rescue of RBS, designed to prevent a bigger calamity in the British banking system and to avoid a deeper recession. On that score, the exercise roughly succeeded. | A thumping £2.1bn loss on the sale of a 7.7% slug of Royal Bank of Scotland shares hurts, but let’s not pretend there was a realistic prospect of making a profit for the public purse. Nor is it really correct to view the numbers through a conventional investment lens. The state’s original purchase of an 83% stake in a two-stage bailout in 2008 and 2009 was not primarily done to make money. It was an emergency rescue of RBS, designed to prevent a bigger calamity in the British banking system and to avoid a deeper recession. On that score, the exercise roughly succeeded. |
| Hammond defends RBS shares sale after £2bn loss to taxpayers | |
| The real mistake, in hindsight, was the failure to nationalise RBS in its entirety at the outset. One can understand why Gordon Brown’s government was reluctant to go the whole hog and take 100% control: it had already nationalised Northern Rock, which was a humiliation in itself, and ministers deemed it better to retain a stock-market listing for RBS and keep the bank in touch with outside investors. | The real mistake, in hindsight, was the failure to nationalise RBS in its entirety at the outset. One can understand why Gordon Brown’s government was reluctant to go the whole hog and take 100% control: it had already nationalised Northern Rock, which was a humiliation in itself, and ministers deemed it better to retain a stock-market listing for RBS and keep the bank in touch with outside investors. |
| That judgment, made in the midst of crisis, was reasonable at the time, so one can’t be too harsh. Yet 83% ownership made it impossible to execute a good bank/bad bank split at RBS, which might have been a wiser strategy once the lid had been lifted on the horrors within. If the rotten assets had been put into longterm run off, the “clean” part of RBS might have done a better job of lending to the UK economy during the recession. | That judgment, made in the midst of crisis, was reasonable at the time, so one can’t be too harsh. Yet 83% ownership made it impossible to execute a good bank/bad bank split at RBS, which might have been a wiser strategy once the lid had been lifted on the horrors within. If the rotten assets had been put into longterm run off, the “clean” part of RBS might have done a better job of lending to the UK economy during the recession. |
| That debate will rage for ever. In the here and now, chancellor Philip Hammond can only be criticised for poor timing. As argued here earlier this week, banks’ share prices have been depressed by the political clouds over Italy; a delay of a fortnight or so might have delivered a sale price closer to 280p-290p, rather than the 271p achieved. Yet the wider principle of holding our noses and selling at a loss is reasonable. The money tied up in the shares can be put to better use elsewhere. Just improve the timing when the next batch of shares goes to market. | That debate will rage for ever. In the here and now, chancellor Philip Hammond can only be criticised for poor timing. As argued here earlier this week, banks’ share prices have been depressed by the political clouds over Italy; a delay of a fortnight or so might have delivered a sale price closer to 280p-290p, rather than the 271p achieved. Yet the wider principle of holding our noses and selling at a loss is reasonable. The money tied up in the shares can be put to better use elsewhere. Just improve the timing when the next batch of shares goes to market. |
| Heathrow may face more turbulence over financial jigsaw | Heathrow may face more turbulence over financial jigsaw |
| It’s a third runway at Heathrow, then – well, possibly. Parliament still has to approve and then the owners of Heathrow have to finalise their proposals and submit a planning application, which isn’t scheduled to happen until 2020. But the biggest challenge is raising the finance for a scheme that is intended to be funded by the private sector. | It’s a third runway at Heathrow, then – well, possibly. Parliament still has to approve and then the owners of Heathrow have to finalise their proposals and submit a planning application, which isn’t scheduled to happen until 2020. But the biggest challenge is raising the finance for a scheme that is intended to be funded by the private sector. |
| The headline £14bn cost is only one figure among many. Of more relevance is the quantum of equity and debt that must be found to finance the project to completion. PwC, in its commercial viability study for the Airports Commission’s 2015 report, reckoned Heathrow would require up to £17.2bn of new borrowing and £7bn in equity. | The headline £14bn cost is only one figure among many. Of more relevance is the quantum of equity and debt that must be found to finance the project to completion. PwC, in its commercial viability study for the Airports Commission’s 2015 report, reckoned Heathrow would require up to £17.2bn of new borrowing and £7bn in equity. |
| Those are colossal sums, especially as Heathrow starts with a lot of existing debt. Indeed, the owner would have debt levels somewhere between Network Rail (about £35bn at the time of the report) and National Grid (about £25bn), said the report. Given that Network Rail’s borrowings, for practical purposes, are guaranteed by the government, the financial arithmetic is adventurous in the extreme for a private-sector scheme. | Those are colossal sums, especially as Heathrow starts with a lot of existing debt. Indeed, the owner would have debt levels somewhere between Network Rail (about £35bn at the time of the report) and National Grid (about £25bn), said the report. Given that Network Rail’s borrowings, for practical purposes, are guaranteed by the government, the financial arithmetic is adventurous in the extreme for a private-sector scheme. |
| The commission still gave a thumbs-up on viability, and it’s true that Heathrow currently has little difficulty raising debt at ultra-low rates. The loose piece in the financial jigsaw, however, is landing charges at the airport, which the commission’s report imagined would increase but the government insists must be held in real terms. | The commission still gave a thumbs-up on viability, and it’s true that Heathrow currently has little difficulty raising debt at ultra-low rates. The loose piece in the financial jigsaw, however, is landing charges at the airport, which the commission’s report imagined would increase but the government insists must be held in real terms. |
| How is that going to happen? Heathrow says it has cut £2.5bn from its original building budget, which is a decent saving, but its overall financing plan is still just an outline at this stage. Maybe it will get there – but it still has a very long way to go. | How is that going to happen? Heathrow says it has cut £2.5bn from its original building budget, which is a decent saving, but its overall financing plan is still just an outline at this stage. Maybe it will get there – but it still has a very long way to go. |
| Sky News may end up an orphan in Murdoch takeover | Sky News may end up an orphan in Murdoch takeover |
| It’s taken an age, but culture secretary Matt Hancock has arrived at a sensible position on Sky. In effect, he’s said he doesn’t trust the Murdochs to keep their hands off Sky News, so 21st Century Fox must sell the channel if it wants to buy Sky itself. Luckily, Disney has already committed to buy Sky News and to own and fund it for 10 years as part of its wider attempt to buy Fox assets in the US. So, in practice, life should work out happily. Sky News should end up with Disney or with Comcast, the rival bidder for Sky. | It’s taken an age, but culture secretary Matt Hancock has arrived at a sensible position on Sky. In effect, he’s said he doesn’t trust the Murdochs to keep their hands off Sky News, so 21st Century Fox must sell the channel if it wants to buy Sky itself. Luckily, Disney has already committed to buy Sky News and to own and fund it for 10 years as part of its wider attempt to buy Fox assets in the US. So, in practice, life should work out happily. Sky News should end up with Disney or with Comcast, the rival bidder for Sky. |
| There is, though, one scenario in which Sky News could end as an “orphan”, as the City puts it. That would require two things to happen. First, Fox bags Sky and Sky News goes to Disney; second, Disney fails to land the Fox assets in the US, possibly because regulators intervene. In that case, Disney would own the loss-making UK news service but no other parts of the current Murdoch empire. That would be a very bad outcome for everyone. The chain of events is unlikely – but not impossible. | There is, though, one scenario in which Sky News could end as an “orphan”, as the City puts it. That would require two things to happen. First, Fox bags Sky and Sky News goes to Disney; second, Disney fails to land the Fox assets in the US, possibly because regulators intervene. In that case, Disney would own the loss-making UK news service but no other parts of the current Murdoch empire. That would be a very bad outcome for everyone. The chain of events is unlikely – but not impossible. |
| Royal Bank of Scotland | Royal Bank of Scotland |
| Nils Pratley on finance | Nils Pratley on finance |
| Heathrow airport | Heathrow airport |
| Heathrow third runway | Heathrow third runway |
| Transport | Transport |
| Air transport | Air transport |
| Banking | Banking |
| Sky News | |
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