Government to sell Royal Bank of Scotland (RBS) – time to let it free?

[Isitmebut]

When the UK decided to nationalise/recapitalise RBS in late 2008 (after the U.S. Lehman Brothers Bank failure tanked all western bank prices forcing mergers etc), if memory serves the stock price was already under £1 and RBS was trading under assets-on-balance-sheet value.

So am I right in thinking that the 500p ‘in price’ to the UK taxpayer, does not reflect just the stock purchase price e.g. also recapitalizing it?

Anyhoo the fact is the UK (taxpayer) followed a route few other (if any) countries did at the time, via ownership, and as we all know, governments cannot efficiently run bath water, never mind complex businesses – and that would have been reflected in the share price performance versus its international peers, since early-to-mid 2009, when the stock markets recovery began.

RBS is NOT the Investment Bank we bought, as yes in terms of asset size baggage it is a lot lighter, but generally speaking by doing that and pulling out of various markets/business areas to ‘reduce risk’ - when those markets have been and will continue to perform well – government has destroyed some of its current (and future) shareholder value.

Sure by saying RBS should concentrate on traditional bank strengths, like the interest rate risk Fixed Income (bond) capital markets, and UK domestic business servicing small to medium sized companies and retail high street customers, is both captain sensible and financially prudent.

But IMO it was like the government buying a low spec Rolls Royce and ‘Pimping the Ride’ down to a high spec Ford family car, without an option to re engineer it.

In Conclusion; On that basis that RBS has been ‘pimped’ and the very fact the government ‘prudently’ owns an investment bank within an industry that traditionally relies on recognising global market opportunities and moving swiftly short or long term to enhance earnings (often hiring and firing within), we should not hold our breath waiting for a 500p price to sell.

An RBS share price has to exist constantly being compared to its domestic and international peers, whose Directors are free to enter higher risk/return markets without annual remuneration worries other than justifying them to investment bank shareholders who bought the added banking risk to add ‘bang for their buck’ overly predominately high street banks with traditionally lower profits.

Setting it free from government ownership in my opinion will give the bank new lending confidence, and as we are selling our shares over time, the further into the sale, the higher the price - _so we should judge the sale on the AVERAGE price once completed, rather than the early sale(s).

[Isitmebut]

P.S. I'm seeing on the likes of Sky's website that "experts" are forecasting a £7.2bil loss on the RBS sale, but others are saying that on the banking names 'portfolio' forced onto the UK taxpayer, on liquidation of the lot, there will be a larger overall net profit. Hmmm.

For a start the RBS sale will be done over a matter of years, so if the timing of sales of blocks of shares can be chosen by the government, not some preset schedule, how can ANY expert predict the end average price we get for RBC?

As to any NET profit on the entire sale proceeds of the 2008 Uk taxpayer banking name portfolio, put together in our name; well a big fat 'yea', lets see it before we believe/spend it.

[Isitmebut]

For those saying 'lets hang on', may I remind people that there are health warnings on 'investing' in markets.

The equity description 'shocks and scares' (stocks and shares) is not so funny in a bear market, and there have been many saying that we could be near the top of the global equity bull market (that began early 2009) as valuations look toppy.

Personally as the upward correction of global bond yields/interest rates is only just starting (so prices in bonds fall) as inflation becomes more of a threat, I'd expect equities might be a safer haven, so institutional switching out/buying equities on dips - should support the equity markets for the year or two ahead.

Which may be what the BoE believes will happen over the next few years, so see them as an RBS/Lloyds selling opportunity, especially as presently the valuation of boring high street banks vs even more regulated investment banks, is puffing up the prices of the former.

But as we know, economies/stocks move in cycles, and within the equity markets, they also trade and re weight their prices inter and intra sectors, cyclically.

It was an emergency intervention not a strategic government investment, and its not as if we luv banks or the senior people within enough to own them, right? lol

[BreakingDad77]

Another deal to help the conservatives and their voters make a buck.

Im just sick of the banking sector, they were toothless to come down on bonus's 'in case the best people leave'

oh you mean then one that have led us into successive financial disasters

Fair play to the US for arresting some people over the loans crisis, shame tories dont have balls to come down on the sector.

The biggest risk to national stability isn't ISIS, its the banking sector, when people actively play with libor rates, shares etc to mess up a countries businesses, they should be treated as financial terrorists.

[Isitmebut]

BreakingDad77 ...

How does the Conservatives and their voters specifically "make a buck"?

Most of the very best people globally left RBS early on, hence their Investment Bank profits fell over the years, while other Investment Banks were making $billions, e.g. the American's who paid back every cent to their government years back, but we 'saved' a few million in bonuses thanks to public demand.

The American's came down on Sub prime lenders entirely on the high street banking level, often brokers/agent bringing in borrowers, as by relaxing the lending criteria on individual loans to the poorest, screwed up the repackaged mortgages into bond issues - we were not selling sub prime loans via the high street, although Northern Rocks business model was to sell numerous repackaged NR mortgages into bond issues - and they went bust as that market dried up and the BoE wasn't helping banks that early on.

Your last paragraph makes no sense at all, as no countries were hurt by any of the frauds you mentioned.

[BreakingDad77]

Undervalued shares will be sold into the market or hedged and jump up in price. And again another loss of money like royal mail.

The austerity as a result of another screw up has caused all kinds of social and structural problems in this country and others.

[Isitmebut]

Individual shares, whether undervalued or overvalued (cheap or expensive) relative to other shares within their industry sector, or against other industrial sector, will all tank within a sustained equity bear market, which we get from time to time.

And the UK government/taxpayer should not be in the Equity Fund Management business, trying to buy at lows, sell at highs - so as the FTSE has only just reached old highs of a decade or so ago - IF we miss the opportunity to sell RBS and the interest rate we pay on government bonds funding the RBS stock purchase spikes up, it will cost us far more to hold onto an RBS with its stock price falling.

Royal Mail was a bit of a cock up as it was launched at a time when global equities were very volatile, international fund managers were mainly sidelined waiting for Debt Ceiling 'events' in the U.S. to resolve itself, it was difficult to price at launch as globally there wasn't really a similar ex government/monopoly company to rate/price it against - and with all that, it was 'priced to sell', as any further equity market dips could have meant it was unsold, with huge egg-on-face to government.

Soon after being floated, the stock markets improved and a Royal Mail without the pension fund liabilities Labour refused to meet, was seen as an attractive and diversified to other issues fund managers held, buy.

Yes Royal Mail rose in price by x-percent, but most other FTSE companies rose a certain extent as the whole indices bounced, so while with hindsight RM was sold too cheap, those looking at the difference between launch date and now, are dumb, as all are higher to a certain extent.

"Peter Mandelson abandons plan for part-privatisation of Royal Mail"
• Business secretary blames poor market conditions
• Trouble looms over £10bn pension deficit
www.theguardian.com/uk/2009/jul/01/royal-mail-mandelson-part-privatisation?guni=Article:in%20body%20link

“As part of the deal, the government had been planning to take on the £10bn pension fund deficit, as well as to change regulation.”

“But now Mandelson has put himself on a collision course with Royal Mail, its pension trustees and unions by refusing to bail out the postal company's estimated pension deficit.”

“The trustees are expected to revise their estimate of the shortfall from the current figure of £3.3bn to at least £10bn in the next few weeks. This would require Royal Mail to more than double its annual payments to plug the deficit, which would bankrupt the company."


Re your "The austerity as a result of another screw up has caused all kinds of social and structural problems in this country and others."

Please explain what you are talking about, as I have no idea what on earth you can be talking about.

[Isitmebut]

P.S. RBS if sold over years (and if for some reason the FTSE index remained flat) there would be a rise in price after each sale BECAUSE the heavy hand of government will have less influence on the company, adding more value to the company - but if in a bear market, that price could be substantially lower than where it is now.

Hence at the end of the sale, it will be the average price obtained that is important.

[BreakingDad77]

A lot of the austerity was a result of the banking crisis

[telsa]

here we go again - the irrationalism that is capitalism finds another advantage - and ideologues speak the mysticism of the market - which most of us care not a toss about, because it only screws US over..

[telsa]

By the way Isitmebut -does the govt pay you to spout this stuff, or do you do it as a hobby? I know Mumsnet is a vector of influence, but to spend so much of your time spinning the news torywards just seems bizarre to me.

[BreakingDad77]

Prob one of these tories that wants us out of Europe but is happy for European companies to run our former nationalized industries and send their profits overseas.

Just amazed that isitme believes the cretinous actions of banks had no link to austerity etc

[Isitmebut]

telsa .... I take the time to EXPLAIN my opinion, so that people who disagree, have the ammunition to shot my opinions down in flames, and fire up a debate.

Out of interest I have followed markets for around 40-years, and I have made it quite clear that I do not actually agree with the Conservative's banking policies since 2010 on this RBS and HSBC thread - so unlike most Labour MP's and their supporters, I do not put my head up my bum and blindly follow/question party dumb-shit polices until AFTER the election - and then say that I knew we were rubbish all along.

As it was that main economic and social pre election dross being aggressively peddled on Mumsnet by Labour mouthpieces, before I began to challenge those opinions, not gang trifle them.

So do you have anything constructive to add to the debate i.e. you don't believe equity prices will fall, you want to take the gamble, or you don't think the government funding the £40 billion plus RBS shares they own at 300-years year low interest rates, will be a problem to you when those interest rates double/treble as the economy and interest rates 'normalise'?

[Isitmebut]

BreakingDad77 ... the banking crisis indeed led to the economic crisis, but the UK pre September 2007 when the banking crisis happened, was severely unbalanced e.g. we had lost 1 million tax paying manufacturing jobs and took on over 1 million new tax funded public sector jobs - and we were already spending well over £30 billion a year more than we earned, funding it.

And don't get me started on government quangos.
www.dailymail.co.uk/news/article-1214001/The-cost-quango-Britain-hits-170bn--seven-fold-rise-Labour-came-power.html

So we were going to be in some trouble at the first major recession, as when private sector employment plummets, the tax receipts fall and unemployment benefits etc rise - when the public sector through quangos, departmental spending, and new staff, was costing us far more than it was in the early 2000's - hence by 2010 due to the combination of the unbalanced economy, the banking crash and recession, the UK had a £157 billion annual budget deficit/overspend, far bigger than any other European country.

So you cannot just blame the banks for what you and others call "austerity", as government policies pre financial crash established huge fixed government over heads, relying on the tax proceeds/growth of a financial bubble to FUND that increased government spending - that fell away as we entered a financial/economic recession.

Tell me what you disagree with.

[Isitmebut]

P.S. As to your "Prob one of these tories that wants us out of Europe but is happy for European companies to run our former nationalized industries and send their profits overseas."

Again, partisan rubbish, as are you saying that under Labour no UK companies were taken over by foreign companies, as the first thing I'd ask is how many gas/electricity companies before Labour came to power, how many after?

Labour sold Westinghouse our only nuclear energy building expertise to Toshiba of Japan, then gave the whole UK nuclear reactor building franchise to the French State (EDF, owned by the French government) - and after all that, Ed Miliband the last Labour Energy Minister, had the gall (or Gaul?) or campaign for years before the general election, 'energy companies weren't working for the people'. And how many Labour suckers fell for it?

Trust me, I could go on.

[Isitmebut]

Back to the RBS Sale.

telsa …. Let me explain further why I disagreed with government action on running RBS, but agree with the SALE – and if you hear or see this via any Conservative mouthpiece, please provide a link.

When the government took over RBS, the annual losses were CONSOLIDATED losses e.g. each year the high street banking write offs/LOSSES were say £4 billion, the investment banking side PROFITS were £3 billion so the consolidated figure would = an annual £1 billion LOSS.

The government/public severely questioned why RBS wanted to pay bonuses to those MAKING the £3 billion profit, as RBS were making a CONSOLIDATED £1 billion loss - while those at RBS making far more money for the bank than their bonuses were not only being paid less for INDIVIDUAL success than their peers at American, Japanese and European investment banks – but as RBS was shrinking their main revenue earning Investment bank division and no employee knew where the axe would fall, job security became an increasing issue, so many receiving job offers from competitors, left.

If an individual selling Ford cars was told they would have to receive a much lower remuneration package than their peers at General Motors and Toyota for years, as Ford management screwed up, built too many cars, and had to be bailed out by their government with redundancies to follow – would all the best individual salespeople stay with that uncertainty?

So through the combination of the best people leaving, RBS being TOLD by government to exit various profitable global business areas that were not seen as ‘core’ to reduce risks e.g equities, and concentrating on interest rate/bond products - when about to enter a prolonged bear market in global interest rates, as when interest rates rise (so bond prices fall) – RBS as is, will not generate the profits they used to. IMO.

The rise in global interest rates will make it tough for all investment bank companies Fixed Income/Bonds divisions to make good money, unless they have extremely talented market-making employees within, which the British government/public don’t have the RBS appetite to pay top dollar for.

You cannot play at being the niche investment bank they are trying to turn RBS into, with one hand behind their back, as there are no major prizes/revenues for coming second.

As unless diversified across several revenue earning divisions (where due to the economic and market cycles, some divisions at all times will be the icing on the full services cake) a niche bank can become RISKIER (for the UK taxpayer) than the full service ones e.g. HSBC were better able to weather the UK banking crisis, as its retail banking business was diversified across the whole world.

So I reiterate, the UK government/taxpayer holding onto an investment banking business we do not want to be free to expand/remunerate as the Directors feel they need to, so with one hand behind their back, is a risk too far, as annual profits and the equity price could plummet – at the same time the interest rate COST of holding RBS shares, could rise significantly over the next 5-years.