The UK government completed its sale of a 7.7% stake in Royal Bank of Scotland (RBS), at a more than £2 billion loss to the UK taxpayer today. The Treasury sold the 925 million RBS shares for £2.51 billion, cutting its holding in the FTSE 100-listed bank from 70.1% to 62.4%.
The shares were sold at a price of 271p each, a significant loss on the average of 502p a share the government paid during its bailout of RBS during the financial crisis of 2008.
Laith Khalaf, senior analyst at Hargreaves Lansdown, calculates the loss to the taxpayer could be as high as £3.4 billion or as low as £1.6 billion, depending which official figures are used.
“It’s now clear the losses sustained by the taxpayer on the RBS bailout are going to be substantial, though this really reflects the price paid for financial stability in the depths of the global banking crisis,” he says. “In essence the RBS bailout cushioned the blow of the financial crisis, and spread the pain across many years, a decision which is now beginning to become more measurable.”
Khalaf adds that while the losses are “deeply unwelcome”, the alternative to a bailout might have been far worse – with RBS potentially taking down the rest of the high street banks with it.
Jane Sydenham, investment director at Rathbones says that, while the economy is in good shape and interest rates are low, this is a good time for the government to be selling off RBS stock.
“Although the sale of stocks is still loss-making for the tax payer, it’s important that the government gets as much back as possible while they can, instead of waiting too long and potentially seeing the economy move into trouble again,” she says. “With this risk in mind, there is no point waiting even if it does mean accepting a loss.”
Chris Beauchamp, chief market analyst at online trading platform IG, says that the 7.7% reduction “hardly removes the crushing hand of state ownership”, as the bank is still majority owned by the taxpayer.
“Still, with the bank inching towards a new dividend and having reached a deal with US lawmakers recently, perhaps it is worth looking beyond the share price impact,” he concludes. “RBS still has plenty of problems, but the slow return to public ownership still makes sense.”
