The government is poised to sell a multibillion pound stake in Royal Bank of Scotland (RBS), resuming a huge privatisation programme that has been stalled for three years.
Sky News has learnt that City bankers and investors have been primed to expect a disposal of part of taxpayers’ 70.5% shareholders, potentially as soon as this week.
Full details of a prospective deal were unclear on Monday, and bankers cautioned that it would be subject to considerations relating to wider stock market conditions and ministers’ ability to demonstrate that the taxpayer was getting value for money.
Those factors could cause any share sale to be delayed, they added.
One City analyst suggested that a disposal could target proceeds of more than £3bn, equating to a roughly 10% stake in RBS.
If such a transaction was to take place, it would reduce taxpayers’ interest in the Edinburgh-based lender to roughly 60%, putting RBS within sight of the milestone of the Government finally relinquishing the majority ownership of the bank it has held since 2008.
A fund manager at a major institutional investor said the City had been “awash with speculation” in recent days that an announcement from the Treasury was imminent.
RBS is due to hold its annual general meeting on Wednesday, and it is unclear whether a sale would take place prior to that or shortly after it.
Any sale would require the approval of Philip Hammond, the Chancellor, and would follow advice from UK Government Investments (UKGI) that it was an appropriate time to dispose of the shares.
A decision to resume RBS’s privatisation would in itself be unsurprising after it reached a long-awaited $4.9bn (£3.6bn) settlement with the US Department of Justice (DoJ) this month relating to the mis-selling of mortgage bonds before the financial crisis.
UKGI has already described it as “an entirely fair assumption” that it would be able to sell a £3bn stake in RBS during this financial year – with projections for a further £12bn of disposals during the next four fiscal years.
One headache for Mr Hammond will be that a share sale at this juncture would be at well below the 330p price at which his predecessor, George Osborne, offloaded a 5.4% stake in RBS in August 2015.
Shares in the bank closed at 289.7p on Friday, giving RBS a market capitalisation of £34.8bn and making the taxpayer’s stake worth just under £24.5bn.
RBS was rescued from collapse with capital injections from the Treasury totalling £45.5bn at an average share price of 502p.
A substantial sale, which would probably be assembled through an overnight book-building process, will benefit RBS by reducing the so-called ‘Government overhang’ which has been a factor in holding back a recovery in its share price.
Mr Osborne was criticised for crystallising a £1.1bn loss for taxpayers with the previous share sale, leaving Mr Hammond exposed to similar attacks because of the even larger prospective losses that a deal will incur.
However, the longevity of taxpayers’ ownership of a majority stake in RBS – now just months short of a decade – will allow the Chancellor to emphasise the importance of restarting the bank’s return to full private ownership.
City analysts have long abandoned any notion that taxpayers would be able to recoup their £45.5bn bailout funds following the series of radical restructurings that RBS has undergone since 2008.
Its global investment banking ambitions have been curtailed, dozens of businesses have been sold, and tens of thousands of jobs have been axed – initially under the leadership of Stephen Hester, and more recently of Ross McEwan.
The recovery of RBS, which before the crisis was run by Fred Goodwin, has gained fresh momentum in recent months, culminating in its first annual profit for a decade and the lower-than-expected DoJ fine.
That has paved the way for Mr McEwan to set out a dividend policy as soon as RBS’s half-year results, with shareholders expected initially to receive a tokenistic payout before rising over time.
Several investment banks and law firms have already been lined up to work on the reprivatisation of RBS, with Rothschild holding a role as the Treasury’s capital markets adviser on the process.
Goldman Sachs is also on board as the Government’s wider privatisation adviser, while Credit Suisse is also understood to have been asked to play a role in a deal.
Other banks which worked on the last share sale, including Citi, Morgan Stanley and UBS, are likely to be in the frame this time around, according to bankers.
They are expected to waive the usual fees for such a transaction, however, as they did in 2015.
The resumption of RBS’s privatisation will come just as Oliver Holbourn, who ran what has become the financial institutions arm of UKGI, joins the bank as its new strategy chief.
An announcement about his appointment is expected soon after RBS’s AGM as the Treasury seeks to avoid any conflict of interest row because of his former role influencing voting decisions on the bank’s boardroom pay and governance.
A Treasury spokesman said on Monday that it did not comment on market speculation, while RBS also declined to comment.