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Taxpayers 'lost £1bn' on Royal Mail sale, MPs say Taxpayers 'lost £1bn' on Royal Mail sale, MPs say
(about 2 hours later)
Taxpayers may have lost out on around £1bn from the undervaluing of Royal Mail, a committee of MPs has said.Taxpayers may have lost out on around £1bn from the undervaluing of Royal Mail, a committee of MPs has said.
The government feared failure and acted on bad advice in the run-up to the Royal Mail stock market flotation, according to a report by the Business, Innovation and Skills select committee. The government feared failure and acted on bad advice over the Royal Mail stock market flotation, reports the Business, Innovation and Skills select committee.
In response, the department which led the sale said the report contained "factual errors and misunderstandings". The Department for Business said the MPs' report contained "factual errors and misunderstandings".
The Department for Business said taxpayers had made £2bn from the deal. Royal Mail shares were priced at 330p, but jumped as high as 618p per share, and now stand around 473p.
Taxpayers 'lost out' The Department for Business, Innovation & Skills pointed out that taxpayers had made £2bn from the deal.
'Significant underestimate'
But in its scathing report the select committee said the shares had been undervalued and property owned by the Royal Mail had been mispriced.But in its scathing report the select committee said the shares had been undervalued and property owned by the Royal Mail had been mispriced.
"We believe that fear of failure and poor quality advice led to a significant underestimate of the demand for Royal Mail shares," said Labour MP and committee chair Adrian Bailey."We believe that fear of failure and poor quality advice led to a significant underestimate of the demand for Royal Mail shares," said Labour MP and committee chair Adrian Bailey.
The committee added that the advice the government received from companies also "wasn't up to standard".The committee added that the advice the government received from companies also "wasn't up to standard".
External adviser Lazard, plus coordinators UBS and Goldman Sachs, "failed to gauge demand at higher price levels and didn't give appropriate consideration to maximising value for money for the taxpayer," the committee said. External adviser Lazard, plus coordinators UBS and Goldman Sachs, "failed to gauge demand at higher price levels and didn't give appropriate consideration to maximising value for money for the taxpayer", the committee said.
Royal Mail shares were priced at 330p, but jumped as high as 618p per share, and now stand around 473p.
After the shares floated, Business Secretary Vince Cable described the sharp appreciation as "froth".After the shares floated, Business Secretary Vince Cable described the sharp appreciation as "froth".
But Mr Bailey said: "The government cannot blithely dismiss as 'froth', our committee's concern that the low issue price of this prime public asset has cost the taxpayer around £1bn." But Mr Bailey said: "The government cannot blithely dismiss as 'froth' our committee's concern that the low issue price of this prime public asset has cost the taxpayer around £1bn."
In its defence, the Department of Business said: "The committee's views on the share price are based entirely on hindsight and ignore that we were selling 600 million shares. In its defence, the department said: "The committee's views on the share price are based entirely on hindsight and ignore that we were selling 600 million shares.
"They found no evidence that the department or its advisers missed vital information prior to sale.""They found no evidence that the department or its advisers missed vital information prior to sale."
Property value Future proceeds
The committee said it was "disturbed" that the taxpayer may not have benefited from valuable assets included in the privatisation.The committee said it was "disturbed" that the taxpayer may not have benefited from valuable assets included in the privatisation.
In particular it highlighted three sites in London which the National Audit Office (NAO) said had a hidden value of up to £830m.In particular it highlighted three sites in London which the National Audit Office (NAO) said had a hidden value of up to £830m.
According to the select committee, the NAO recommended that those assets should not be included in the privatisation or an arrangement should be made to claw back proceeds of any future sale of those properties.According to the select committee, the NAO recommended that those assets should not be included in the privatisation or an arrangement should be made to claw back proceeds of any future sale of those properties.
"The government's inclusion of Royal Mail's 'surplus' assets in the sell-off, without the prospect of clawing back future proceeds, may also mean the taxpayer losing out once again," Mr Bailey said."The government's inclusion of Royal Mail's 'surplus' assets in the sell-off, without the prospect of clawing back future proceeds, may also mean the taxpayer losing out once again," Mr Bailey said.
'Conflicts of interest'
The committee also expressed concern about so-called preferred investors who received large blocks of shares, prior to the flotation.The committee also expressed concern about so-called preferred investors who received large blocks of shares, prior to the flotation.
Some were also advisers to the government over the share sale.Some were also advisers to the government over the share sale.
The committee added that in future, "any perception of financial advantage must be removed from the privatisation process".The committee added that in future, "any perception of financial advantage must be removed from the privatisation process".
Lazard, UBS and Goldman Sachs all had Royal Mail shares allocated to separate parts of their businesses. Lazard and the banks made millions of pounds on the sale on behalf of clients.Lazard, UBS and Goldman Sachs all had Royal Mail shares allocated to separate parts of their businesses. Lazard and the banks made millions of pounds on the sale on behalf of clients.
"We recommend that the department give serious consideration to excluding any company involved in the selection of preferred investors, as a preferred investor, even if the appropriate 'Chinese walls' remain intact," the committee said."We recommend that the department give serious consideration to excluding any company involved in the selection of preferred investors, as a preferred investor, even if the appropriate 'Chinese walls' remain intact," the committee said.
'No evidence'
Lazard & Co was paid £1.5m for advising the government. Lazard Asset Management (LAM), which was selected as one of the preferred bidders, made £8.4m for clients by selling shares shortly after the flotation. LAM itself made a profit of around £40,000 from the share sale.Lazard & Co was paid £1.5m for advising the government. Lazard Asset Management (LAM), which was selected as one of the preferred bidders, made £8.4m for clients by selling shares shortly after the flotation. LAM itself made a profit of around £40,000 from the share sale.
However the Department for Business said: "There is no evidence that the government's independent adviser, Lazard, or any other bank involved in the sale, breached the Chinese walls that existed between different and unrelated parts of the business."However the Department for Business said: "There is no evidence that the government's independent adviser, Lazard, or any other bank involved in the sale, breached the Chinese walls that existed between different and unrelated parts of the business."
Labour: Royal Mail sale 'botched'
Ian Murray MP, Labour's shadow minister for trade and industry, said: "Ministers pressed ahead with their unnecessary and botched fire sale of Royal Mail, despite widespread opposition and warnings.Ian Murray MP, Labour's shadow minister for trade and industry, said: "Ministers pressed ahead with their unnecessary and botched fire sale of Royal Mail, despite widespread opposition and warnings.
"As a result, taxpayers have been short changed by hundreds of millions of pounds while the government's 'priority' City investors made a killing at the public's expense." "As a result, taxpayers have been short-changed by hundreds of millions of pounds while the government's 'priority' City investors made a killing at the public's expense."
On Wednesday, the government announced there would be a review, led by former City minister Lord Myners, of how it handled stock market flotations.On Wednesday, the government announced there would be a review, led by former City minister Lord Myners, of how it handled stock market flotations.
Mr Murray added: "By launching an inquiry into the Royal Mail fire sale this week, ministers have admitted what everyone else has known for months on the huge failings there have been. David Cameron's government still has serious questions to answer."Mr Murray added: "By launching an inquiry into the Royal Mail fire sale this week, ministers have admitted what everyone else has known for months on the huge failings there have been. David Cameron's government still has serious questions to answer."
The committee's report is the latest in a series of official criticisms of the sale, including by the National Audit Office and the Public Accounts Committee.The committee's report is the latest in a series of official criticisms of the sale, including by the National Audit Office and the Public Accounts Committee.