By Max Colchester And Juliet Samuel
The U.K. Treasury on Monday started the long-awaited
privatization of Royal Bank of Scotland Group PLC, announcing it
would sell a 5.2% stake in the lender.
The government, which owns a 78% stake in RBS following a
bailout in 2008, said it would sell a 5.2% stake in RBS via an
overnight book build. The government expects to raise around GBP2
billion ($3.1 billion) from the sale, according to a person
familiar with the matter.
The U.K. government pumped in GBP45.5 billion to rescue RBS
during the crisis at an average price of GBP5 per share. RBS shares
closed well below that level, at GBP3.38 on Monday. The disposal
will likely see shares offered at a further discount to that
price.
U.K. Financial Investments Ltd., a company set up to manage the
government's bank shareholdings, "advised the Chancellor it would
be appropriate to conduct the first sale of the government's
shareholding in the Royal Bank of Scotland. The Chancellor agrees
with that advice and has authorised the process to begin," the U.K.
Treasury said in a statement.
The decision to sell opens a new chapter on the country's
tortuous efforts to put its banking woes behind it.
Following the 2008 bailout government officials hoped RBS's vast
international and investment banking operations would help generate
enough profit to put the bank on its feet. However by 2013 the
losses were still mounting and it became clear the government's
hands-off strategy had failed. The U.K. government became more
proactive, ousting RBS's chief executive, forcing the bank to chop
down its investment bank and divest its U.S. operations.
U.K. officials gave up on the idea that the bank's shares would
soon rise above the original bailout price.
In July the Treasury was advised by UKFI that it would be
feasible to sell GBP25 billion of RBS shares by 2020, effectively
firing the starting gun on the sale.
It is unclear what returns U.K. taxpayers will make on the money
locked up in RBS. The bank is currently going through a vast
restructuring, which isn't set to be completed before 2019. Last
week RBS warned that it wouldn't be paying dividends until at least
the start of 2017 as it looks to hurdle balance sheet stress tests
and settle many litigation issues.
The promise of excess capital being redistributed via dividends
tempted some investors. David Cumming, head of U.K. equities at
Standard Life, which owns 0.36% of the bank, said his firm could
build its stake. "We might buy some more. We don't know what the
price is yet," he said Monday evening. However another manager of a
U.K.-focused fund who asked not to be named said he wouldn't be
buying shares because of the lack of certainty as to when RBS would
pay a dividend. "I'd like to have pretty good visibility that
there's going to be a dividend pretty soon," he said.
U.K. Chancellor George Osborne has tried to navigate the
political ramifications of selling the government's RBS stake at a
loss. The U.K. government hired investment bank Rothschild to
review the pros and cons of selling RBS shares below the buy-in
price. Rothschild's report argued that the profits generated by the
sale of Lloyds Banking Group PLC shares, the various fees paid by
the banks to the Treasury and the revenues from running down the
U.K.'s "bad bank," would offset any loss on RBS shares. A partial
RBS sale would also increase the number of shares traded in the
lender, encouraging others to invest, and show the U.K. government
is committed to privatizing the bank.
"Alongside the U.S., the U.K. will be one of the first countries
that is able to demonstrate that it can comfortably expect to
record a gain on its bank interventions," Rothschild said in a
letter to the U.K. Chancellor.
Analysts say the review didn't take into consideration the cost
of borrowing the funds to bail the banks out.
Write to Max Colchester at max.colchester@wsj.com and Juliet
Samuel at juliet.samuel@wsj.com
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