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Royal Bank of Scotland shares rise after Osborne's Mansion House speech Royal Bank of Scotland shares rise after Osborne's Mansion House speech
(35 minutes later)
Royal Bank of Scotland’s share price rose on Thursday after thechancellor announced he was ready to sell off the taxpayer’s stake inthe bank. Royal Bank of Scotland’s share price rose on Thursday after thechancellor announced he was ready to sell off the taxpayer’s stake in the bank.
The 2% rise in the shares came as investors has their first chance toreact to the announcement in last night’s Mansion House speech that the government will finally start disposing of the 79%-taxpayer owned stake seven years after the bailout. The 2% rise in the shares came as investors had their first chance to react to the announcement in Wednesday night’s Mansion House speech that the government would finally, seven years start disposing of the 79%-taxpayer owned stake seven years after the bailout.
George Osborne tried to counter criticism that he was selling thestake at a loss by publishing a report by investment bankers atRothschild which included all the fees and proceeds of sales from theother banks rescued during the crisis - Lloyds Banking Group, NorthernRock and the mortgage arm of Bradford and Bingley. On this basis, the taxpayer could make a profit of £14bn on the Labour government’s rescue of the banking system in 2008 and 2009. George Osborne tried to counter criticism that he was selling thestake at a loss by publishing a report by investment bankers atRothschild which included all the fees and proceeds of sales from the other banks rescued during the crisis – Lloyds Banking Group, Northern Rock and the mortgage arm of Bradford and Bingley. On this basis, the taxpayer could make a profit of £14bn on the Labour government’s rescue of the banking system in 2008 and 2009.
The £13bn loss on the value of the RBS stake falls to a £7bn loss when the fees paid by RBS tothe taxpayer are included, according to Rothschild. The £13bn loss on the value of the RBS stake falls to a £7bn loss when the fees paid by RBS to the taxpayer are included, according to Rothschild.
The average price the taxpayer bought its stake in the bank was 502pand after Thursday’s rise the shares still remained well below thislevel at 362p. The average price at whcih the taxpayer bought its stake in the bank was 502p, and after Thursday’s rise the shares remained well below this level at 362p.
Osborne acknowledged the loss in his Mansion House address. “We mayget a lower price than Labour paid for it. But the longer we wait thehigher the price the whole economy will pay,” the chancellor said. Osborne acknowledged the loss in his Mansion House address. “We may get a lower price than Labour paid for it. But the longer we wait, the higher the price the whole economy will pay,” the chancellor said.
But he also hoped that the proposed announcement of a sale would helpto bolster the share price as City investors would be attracted by thepotential reduction in government meddling. But he also hoped that the proposed announcement of a sale would help to bolster the share price as City investors would be attracted by the potential reduction in government meddling.
Selling down the stake is likely to take “some years”, Osborneacknowledged, and would eventually lead to an offering of shares to thepublic. Selling down the stake is likely to take “some years”, Osborneacknowledged, and would eventually lead to an offering of shares to the public.
He also tried to counter concern that any sell off could not takeplace before the bank settled a muti-billion pound lawsuit in the USover the way bonds were sold before the crisis. The analysis byRothschild concludes that this penalty - possibly as much as £2bn - isalready reflected in the share price. He also tried to counter concern that any sell-off could not takeplace before the bank settled a muti-billion pound lawsuit in the USover the way bonds were sold before the crisis. The analysis byRothschild concludes that this penalty – possibly as much as £2bn – isalready reflected in the share price.
Ian Gordon, analyst at Investec, said: “We think that the timing oflast night’s announcement was arguably somewhat premature, dictatedmore by politics rather than, necessarily, an exercise in optimisingmarket timing. That said, we continue to believe that the RBS shareprice will see support on a 12-month view from the emergence of amaterial capital surplus and a return to (reported) profit in 2016.”