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RBS signals government could sell taxpayer stake next year RBS signals government could sell taxpayer stake next year
(about 11 hours later)
Royal Bank of Scotland has given the clearest signal yet that the government is preparing to sell off part of the taxpayer's 82% stake in the bailed-out bank next year. Royal Bank of Scotland has given the clearest signal yet that the government is preparing to sell off part of the taxpayer's stake in the bailed-out bank next year.
As the Edinburgh-based bank reported a profit of £826m for the first quarter compared with a £1.4bn loss the same time last year, its chairman, Sir Philip Hampton, said RBS could be ready for sale from the middle of 2014 – or even earlier.As the Edinburgh-based bank reported a profit of £826m for the first quarter compared with a £1.4bn loss the same time last year, its chairman, Sir Philip Hampton, said RBS could be ready for sale from the middle of 2014 – or even earlier.
At the 2012 results in February, Hampton had said the bank hoped to be ready for sale in 2014, but he used more definitive language on Friday, raising the prospect of drawing up a prospectus for shareholders "from the middle of 2014". But the return to profit, and talk about a return to the private sector, did not impress the stock market. RBS shares were the biggest fallers in the FTSE 100, dropping 5.5% to 289p, a level that represents a £19bn loss on the £45bn ploughed in by the taxpayer during 2008 and 2009.
"It could be earlier. We think the recovery process will be complete in about a year or so's time," he said. The decision to sell the 81% stake rests with the Treasury and the disposal is expected to take place in a series of tranches over a number of years. Hampton used more definitive language about the prospects of a share sale than he did at the results in February, issuing a video message in which he said drawing up a prospectus for shareholders could be achieved from the middle of 2014. "It could be earlier … we think the recovery process will be complete in about a year or so's time," he said.
A prospectus contains all the details about the bank's financial performance and would be needed to be sent to prospective shareholders if the shares are to be sold off.A prospectus contains all the details about the bank's financial performance and would be needed to be sent to prospective shareholders if the shares are to be sold off.
The government will need to decide the price at which it wants to sell any shares, which closed on Thursday at 307p. This is below the 500p average price at which the taxpayer bought the stake during 2008 and 2009 – the equivalent to a £17.5bn loss. An uncharacteristically upbeat Stephen Hester, who became RBS chief executive at the time of the October 2008 banking crisis, said the group was "back in profit … a big change on recent times".
But in March it emerged that government had reduced the average price to 407p. Some £900bn has been taken off the bank's balance sheet which was £2.3tn at the time of its bailout.
The shares fell further after the results were announced to 294p, widening the loss to £19bn, partly on slower than expected growth in revenues. But Ian Gordon, banks analyst at Investec, said: "We were quite bemused listening to RBS management describe the business as 'ready for privatisation in 12 months'. It is ready now – it was ready three years ago – surely the only issue we are actually discussing here is the price."
Ian Gordon, banks analyst at Investec, said: "Underlying trends are weaker, with operating profit of £800m – down 28% – a £400m consensus miss. The markets division [pre-tax profit down 64%] looks awful. Fresh speculation that the UK government may start off-loading its stake in RBS and/or its 39% stake in Lloyds at a loss is negative for shareholders." The average share price at which taxpayers bought the stake in the bank was around 500p, although a figure has since emerged of 407p, which was the average price of the shares on the stock market on the days the shares were bought.
Stephen Hester, the chief executive of RBS, said the group was "back in profit … a big change on recent times". Hester, who described the possibility of privatisation as a "terrific thing for the country", conceded that some of the share sales could take place at a loss. "There may well be a cogent case for starting at a lower price but I believe the average price can, and should, be above the government purchase price," Hester said.
"The cleanup mission is nearing its successful completion," he added, with £900bn taken off the bank's balance sheet which was £2.3tn at the time of its £45bn taxpayer bailout. The slow economy and tougher regulations had made all bank shares less valuable, Hester said, but he insisted he was not complaining about the regulatory changes facing the industry. "It is our view that privatisation would be a terrific thing for the country psychologically and in terms of taxpayers money be freed up for other needs," Hester said.
Hester said there had not been any recent discussions with the government about the timing of any nature of any share sell off – although there is mounting speculation that the chancellor, George Osborne, wants a sale before the election. The parliamentary banking standards commission could still call for the break-up of RBS into a good and bad bank. Such a decision should be for the government, Hester said, but he did not dismiss the idea out of hand.
"It is our view that privatisation would be a terrific thing for the country both psychologically and taxpayers money be freed up for other needs," Hester said, insisting that £500bn of financial aid to RBS in the form of liquidity and toxic asset insurance had already been removed. Even though RBS was back in profit, the City had been expecting a stronger performance and was surprised by the sharp downturn in the investment bank's profits. "Underlying trends are weaker, with [group] operating profit of £800m – down 28% – a £400m consensus miss. The markets [investment bank] division [pre-tax profit down 64%] looks awful," said Gordon.
The £45bn of taxpayer money ploughed into the bank's shares was still "left to go" and a complete share sale would likely take a number of years. Hester has been under political pressure to scale back the investment banking division and focus RBS on helping grow the domestic economy.
"Privatisation is a good thing for RBS as well the country," he said. He added that the decision lay with the government, which is expected to sell off the shares in tranches, with the first one possibly at a loss. The bank did not make an additional charge for payment protection insurance on top of the existing £2.2bn it has set aside, although it ring-fenced an extra £50m for insurance rate swap mis-selling. It is also falling behind in selling off the 316 branches that it has been instructed to by Brussels and signalled a stock market flotation of the branches under the revived Williams and Glyn's brand could take place in 2015.
But Hester, who said the slow economy and tougher regulations had made all bank shares less valuable, said that by the time the entire stake was sold taxpayers should get their money back. The bank is also still waiting to learn the size of any fine for money laundering offences in the US and warned it could have a "material adverse affect" on future results.
There were still "bumps in the road", said Hester, who was parachuted into RBS at the time of the October 2008 bailout to replace Fred Goodwin.
"There is hard work still ahead for the economy and our industry. Nonetheless, our sights are set on moving RBS beyond its restructuring phase towards the ambition of building a really good bank for customers and for all we serve.
"These results show pleasing progress in delivering a strong and valuable RBS for all our stakeholders. We expect to substantially complete the bank's restructuring phase during 2014."
A number of question marks still hang over any share sale. The Prudential Regulation Authority, the new City regulator, is still in discussions with the industry about how to plug a £25bn capital shortfall it has identified across the industry. The parliamentary commission on banking standards is due to report next month and has been asking questions about whether RBS should be broken up into a good and bad bank. The proposals from the independent commission on banking to implement a ringfence between high street and investment banking still need to be implemented.
The bank did not make an additional charge for payment protection insurance on top of the existing £2.2bn, although it put aside an extra £50m for insurance rate swap mis-selling.