Sign up UNITED KINGDOM
Proactive Investors - Run By Investors For Investors

Taxpayer's loss in government's RBS stake sale worse than thought, NAO reveals

The government still owns more than 70% of RBS as the bank continues to suffer annual losses
RBS
The Chancellor expects a big loss on the sale of remaining RBS shares

Taxpayers nursed a £1.9bn loss after the government’s only sale of Royal Bank of Scotland Group plc’s (LON:RBS) shares two years ago but it still represented “value for money”, according to calculations by the National Audit Office.

UK Financial Investments (UKFI), which is owned by the Treasury and manages the sale of the government’s shares in RBS, offloaded a 5.4% stake in the bank in August 2015 at 330p each.

The sale raised £2.1bn and at the time was forecast that it would mark a £1bn loss for the taxpayer.

However, the NAO revealed today that the overall losses were bigger than previously expected, having in fact reached £1.9bn.

The original estimate was based on the price the government paid for its £45.5bn bailout of the lender during the height of the 2008- 2009 financial crisis. The bailout took place at an average 'in-price' of 502p but that falls to 499p after taking into account the income the Treasury received from redeeming preference shares.

“This, however, does not factor in the financing costs of acquiring the shares,” the NAO said in a report on the sale.

"We have calculated that if the costs of financing the intervention are also taken into account, the government would have had to sell the shares at 625p each to break even.”

RBS stake sale still value for money, says NAO

The NAO still concluded that the UKFI achieved “value for money” and that the sale was executed “as skilfully as could reasonably be expected”.

The government still owns more than 70% of RBS as the bank has failed to turn over an annual profit since its bailout as it tackles historical misconduct.

Chancellor Philip Hammond has signalled that the taxpayer will likely suffer a big loss on the sale of the remaining shareholding, telling MPs in April “we have to live in the real world”.

“Our policy remains to return the bank to private hands as soon as we can achieve fair value for the shares, recognising that fair value could well be below what the previous government paid for them,” Hammond said.

In contrast, the government sold its remaining stake in Lloyds Banking Group in May after buying at 43% stake in the bank during the financial crisis. Unlike RBS, Lloyds has had a successful turnaround, having posted annual profits. 

View full RBS profile View Profile

Royal Bank of Scotland Timeline

© Proactive Investors 2017

Proactive Investor UK Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use