And about time too: Hammond signals RBS to live “in real world”
At long last – and one can argue it is long overdue – there is some sign of the UK government coming to its senses over the near 10 year disaster that is state control of Royal Bank of Scotland (RBS).
UK finance minister Philip Hammond told Parliament that “we have to live in the real world” and suggested that the government may dispose of its stake in RBS at a loss.
And it will be a whopping loss.
Any cursory glance at UK political/industrial history will reveal that governments are catastrophic owners of car manufacturers (British Leyland), telcos (recall the six-month wait for a black telephone pre- BT) and airlines.
In the banking sector - as many commentators argued at the time of RBS’ £45.2bn ($57.9bn) bail-out by the Gordon Brown Labour government – there was ample evidence that political interference in French, Russian and Korean banks had almost always been a disaster.
Under state control, RBS has posted nine straight years of losses totalling £58bn and counting, including a loss of £7bn for fiscal 2016.
By no stretch of the imagination can it be said that government control of RBS has been a success. RBS continues to suffer from political interference. It desperately needs fresh capital and new leadership.
Nine years of state control has not solved all of RBS’ legacy issues.
It has unresolved legal issues relating to its 2008 rights issue; it also has costly outstanding US regulatory issues running into the billions to resolve. Chuck in the current management’s embarrassing failure to sort out the Williams & Glyn business unit and IT issues and it ought to be clear even to the political class that muddling on in the hope of the RBS share price inching up is not an option.
Until Hammond’s comments, the party line was that the UK government would not start to sell down its RBS stake of over 70% until the bank resolves its US regulatory issues and finalises its EU imposed state aid penalties.
In 2015, then UK finance minister George Osborne sold £2.1bn of RBS shares at an average price of £3.30 per share, resulting in a loss of around £1.1bn to the exchequer.
That reduced the government shareholding from 79% to just below 73%. Had the government sold of all its holding at such a price, it would have booked a loss of about £15bn.
Today, RBS shares languish at around £2.27 giving a market cap for the bank of about £27bn.
It has been patently clear for a number of years that the UK government cannot begin to meet the past promise given by the Treasury that it would get the taxpayer’s money back by privatising RBS.
It is time to cut its losses and get RBS back into private ownership as soon as possible.
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