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Royal Bank of Scotland shares rise after Osborne's Mansion House speech Senior figures doubt Osborne claim that taxpayers will profit from bank bailouts
(about 9 hours later)
Royal Bank of Scotland’s share price rose on Thursday after the chancellor announced he was ready to sell off the taxpayer’s stake in the bank. George Osborne is facing questions about his claim that the taxpayer would make a £14bn profit from its bailout of the banking system seven years ago.
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. Andrew Tyrie, incoming chairman of the Treasury select committee, said on Thursday the figure required a “great deal of qualification”.
George Osborne tried to counter criticism that he was selling the stake at a loss by publishing a report by investment bankers at Rothschild 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 chancellor had told senior bankers at the Mansion House on Wednesday that bankers at Rothschild had calculated the profit figure as part of his announcement that he was ready to sell off the taxpayer’s stake in Royal Bank of Scotland, even though the shares are trading at a £13bn loss.
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. Rothschild included fees paid by the bank to the Treasury as well as proceeds from the bailout of Lloyds Banking Group, Northern Rock and the mortgage book of Bradford & Bingley to produce the £14bn profit.
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. But Tyrie said: “The Rothschild review puts the net gain to the taxpayer from the bank bailouts at £14bn. This would benefit from a great deal of qualification. It excludes the cost of funding the bailouts. The Office for Budget Responsibility put this at £17bn. And it treats fees paid in exchange for a service as if they were income, or recoveries.”
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. Shares in the 79% taxpayer-owned bank rose 2% on Thursday as investors had their first chance to react to the Mansion House announcement. The average price at which the taxpayer bought its stake in the bank was 502p, and after Thursday’s rise the shares remained well below this level at 362p.
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. Osborne was also facing questions from unions, Labour and analysts about the timing of the selloff after the shares rose. Rob McGregor, Unite’s national officer for finance, said: “Like Royal Mail and British Gas before it, the Tories are ripping off the public by selling our stake in RBS at a knock-down rate to city investors.”
Selling down the stake is likely to take “some years”, Osborneacknowledged, and would eventually lead to an offering of shares to the public. “Taxpayers who bailed out RBS during the global financial crisis want their money back and will rightly be suspicious of any rush to sell,” Labour’s Chris Leslie said.
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 – is already reflected in the share price. Ian Gordon, an analyst at Investec, said: “We think that the timing of last night’s announcement was arguably somewhat premature, dictated more by politics rather than, necessarily, an exercise in optimising market timing.”
Ian Gordon, analyst at Investec, said: “We think that the timing oflast night’s announcement was arguably somewhat premature, dictated more by politics rather than, necessarily, an exercise in optimising market timing. That said, we continue to believe that the RBS share price will see support on a 12-month view from the emergence of a material capital surplus and a return to (reported) profit in 2016.” However, Gordon said the shares could be supported in the coming 12 months as the RBS generates capital and begins to return to profit after seven years of losses.
Osborne hopes the proposed selldown of the government stake would make the shares more attractive to City investors, who may have been deterred by fears of political meddling. He also tried to counter concern that any selloff could not take place before the bank settled a mutibillion pound lawsuit in the US over the way bonds were sold before the crisis.
The analysis by Rothschild concludes that this penalty – possibly as much as £2bn – is already reflected in the share price.
The chancellor had faced calls from bankers to review taxation of the sector before his speech. He did not launch such a review but said: “I want Britain to be the best place for European and global bank HQs.” His comments came as HSBC reviews whether to remain headquarted in the UK.