June 11th, 2015
During his annual Mansion House speech to an assembly of top city bankers, the Chancellor George Osborne confirmed the government’s plan to sell the Royal Bank of Scotland. The bank was saved by the previous Labour government at the outset of the financial crisis in 2008 and has been funded by tax-payers funds since that time. Osborne stated that the sale could last for “some years and will likely involve all types of investors.”
The current share value sits at £13bn less than was paid to bail out the Bank, at a stage when it appeared to have all but collapsed. The government will aim to sell shares firstly to high profile City-based organisations, with the expectation being that the remainder will be offered to the public, much in the same way that the government plan to offer shares in the Lloyds Banking Group.
While the government initially provided £42bn of funds to RBS to prevent a collapse of the bank in 2008, it is estimated that a further £32bn has since been invested to keep the bank afloat. The chancellor justified his stewardship of the post-rescue process while speaking last night, stating that the government would stand to achieve a profit of £14.3bn for the bail out of the banks. This figure consists of funds generated from Northern Rock and Bradford and Bingley, as well as proceeds from the sale of shares in Lloyds.
Osborne chose to justify the move, on the basis that the timing was pivotal to prevent the taxpayer bearing the brunt of further loss. He said: “It’s the right thing to do for British businesses and British taxpayers. Yes, 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. And when you take the banks in total, we’re making sure taxpayers get back billions more than they were forced to put in.”
The chancellor also launched a defence of the Conservative government, blaming the previous Labour Government as the culprits for saddling the taxpayer with the burden. Osborne insisted, “I was not responsible for the bailout of RBS or the price paid then for shares bought by the taxpayer, but I am responsible for getting the best deal now for the taxpayer and doing whatever I can to support the British economy.”
The governor of the Bank of England, Mark Carney, backed the move to sell RBS in a letter published yesterday evening. Within the letter, Carney said: “Continued public ownership without a foreseeable endpoint runs risks including limiting RBS’s future strategic options, and continuing the perception that taxpayers bear responsibility for RBS losses. In these regards, there could be considerable net costs to taxpayers of further delaying the start of a sale.”
At the close of trading on Wednesday evening, the current share value for RBS stood at 354p, compared to the 502p price that was paid to bail out the ailing bank in 2008. The investment bank Rothschild predicts that the share price is likely to never reach the same level seen before the financial crisis. The firm also predict that the share price will not be damaged further by an impending multi-billion lawsuit that American authorities have brought, which revolves around the RBS involvement in sub-prime mortgage practices that played a part in the downfall of the US economy.
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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