Banking Crisis

UK Sells Down Royal Bank Of Scotland Stake, Shares Slip

Tom Burroughes Group Editor London 5 June 2018

UK Sells Down Royal Bank Of Scotland Stake, Shares Slip

The UK is taking a further move to return the lender to full private ownership, although the sale will still see it retain majority control. Shares in the bank fell today.

The UK government is selling around 7.7 per cent of the stake it continues to hold in Royal Bank of Scotland, cutting to state stake in the lender to about 62.4 per cent.

The sale was slated as of yesterday to take place by way of  a share to institutional investors. The share price of £2.70 as shown around 07:00 GMT today per share is below the £5.02 that the government, then led by Gordon Brown, paid as part of the £45.5 billion bailout during the 2008 financial crisis. Shares were trading about 3.6 per cent down from the open.

The bank, which is parent of Coutts and Adam & Co, has been on a long road to recovery, seeing its UK rival Lloyds Banking Group, which was also bailed out, return to full private ownership.

‘The RBS share price has bounced back from its slump after the EU referendum, but the taxpayer’s still going to be significantly out of pocket as the government sells down its stake. Few argue the RBS bailout was necessary to maintain financial stability, but the cost of that intervention is now starting to emerge," Laith Khalaf, senior analyst, Hargreaves Lansdown, said.

"In August 2015 the government sold 5.4 per cent of the bank at £3.30 per share, which the National Audit Office estimated crystallised a loss of £1.1 billion, or £1.9 billion if you include the cost of financing," Khalaf continued.

"RBS has cleared several obstacles which have now unblocked the road to re-privatisation, in particular settling claims for mis-selling mortgage-backed securities in the US. Today’s share sale is good news for private investors in RBS because it is a step towards becoming a normal bank again, though government sales may put downward pressure on the share price in the near term. As a business RBS remains a work in progress, and consequently an investment for recovery investors with a long term investment horizon," he added.

“However, it has not been a great investment for the British tax payer as the shares were bought at the average price of around £5. Headlines are expected to be dominated by the deficit as a loss of more than £2bn has been realised," Graham Spooner, investment research analyst at The Share Centre, said in a note today.

“A positive would be that institutional shareholders paid more or less the market price so they must have some confidence in the banks longer-term recovery. As well as this, the bank could be a step nearer to paying a dividend. “The negative is that the government still have a large holding of 62.4 per cent which is set to overhang the market for some time; the government cannot sell any more for 90 days," he continued.

Spooner said his firm is sticking to its "hold" recommendation on RBS shares, having changed from a "sell" position some time ago.


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