By Christine Berry
Aug 4, 2015
The government have fired the starting gun on the sale of RBS. UK Financial Investments has begun selling a 5% stake in the bank at just 330p a share – this is way below the current market price of RBS’ shares, and miles below the 502p a share that was paid to bail out the bank.
Press attention has focussed on the estimated £1 billion loss that has already been made on the sale overnight – and updated NEF figures suggest that if the entire stake was sold at similar prices, the total losses could be at least £14bn.
With major investors like USS and L&G indicating they will steer clear of purchasing RBS shares, it remains uncertain just how quickly Osborne will be able to offload the government’s stake, and at what price. But the real question more people should be asking is not just whether now is the right time to sell, but whether we should be selling RBS at all.
Let’s take a moment to remember why we own RBS in the first place. This is a bank whose reckless lending and aggressive pursuit of profit helped bring the UK economy to its knees, with its shareholders cheering from the sidelines, dazzled by its outsized returns on equity and oblivious to the risks incurred. There could scarcely be a worse poster-child for the government’s claim – often repeated but never evidenced – that banks perform better in the private sector.
In fact, as we’ve argued many times, the UK’s unique over-reliance on this type of bank is one of the key things that makes our financial system so fragile. In other similar economies – like Germany, Switzerland and Canada – ‘stakeholder banks’ like public savings banks, co-operatives and credit unions are the powerhouses of SME lending and regional economic development. Flogging RBS back to the private sector at knock-down prices is a huge missed opportunity to create similar institutions in the UK. By turning RBS into a network of local banks, owned in trust for the public benefit, we could boost the economy while enhancing our resilience to any future financial crisis.
It’s not only NEF that has questioned whether a return to the pre-crisis model is the best we can do with RBS. Other think-tanks including Civitas and Respublica have made similar proposals for a new local banking network. Under the last government, Vince Cable suggested turning RBS into a state investment bank. And eminent figures, from regulator Martin Taylor to the coalition’s entrepreneur in residence Laurence Tomlinson, have called for RBS to be broken up into a series of ‘challenger banks’ before being privatised. On the back of yesterday’s news, a petition against the firesale has now topped 100,000 signatures. There is simply no mandate for this reckless sale, either from experts or from the public.
So far, the government’s only response has been to wave a letter from the Governor of the Bank of England, which claims that selling off RBS now will be good for our economy and the resilience of our financial system. But this raises more questions than it answers: the Independent recently revealed that key Bank of England committees were not consulted about this letter, and no accompanying evidence has been published to support the Governor’s bold assertions.
As the losses pile up and the chorus of criticism mounts, how long will the government be able to sustain their claim that they are acting in the best interests of taxpayers and the economy?