The government’s RBS share sell-off is about to begin: Here’s what you need to know
This week, George Osborne is due to kick start the government's sale of its 78 per cent stake in Royal Bank of Scotland (RBS).
The chancellor's plan to offload the shares was announced during his Mansion House speech in June, and depending on market volatility it could begin as soon as Tuesday.
It comes seven years after the Labour government used £45.8bn of taxpayer money to save the bank after it almost fell apart at the hands of the financial crisis.
So, what does the sale mean for everyone involved? And what should those in the City look out for? Here are the key points to be aware of.
It will be sold at a huge loss
If the government is swift in its sale, the shares will be given away for a lot less than they were originally bought for, thanks to a huge decline in value since 2008.
The Treasury has acknowledged it is going to to accept a loss on investment through the sale, with shares currently valued at 342p – a long way off the 502p needed to break even. For the taxpayer, this will mean a loss of around £10bn.
But the chancellor says it's better for the economy, and others agree
Despite the loss that will be suffered if a sale is made immediately, the chancellor argues that in the long-term it will bring the best outcome for the government and the wider economy.
“Yes, we may get a lower price than Labour paid for it, but the longer we wait, the higher the price the economy will pay,” the chancellor said in his June speech.
He is not the only only one to hold this opinion – a Rothschild report commissioned by the government came to the same conclusion and the decision is supported by Mark Carney, governor of the Bank of England.
Initially shares will be limited to institutional investors
To begin with, only City institutions such as hedge funds and sovereign wealth funds will be able to buy shares in the bank.
Over the proceeding years, the shares will also be made available to the wider population. A retail sale is planned to begin in 2016.
The sale is being managed by Goldman Sachs, which will advise the Treasury on when it should end the sale.
The sale will be staged
The shares will not all be sold off in one go, but via staggered sales. The government has not yet confirmed the amount it is planning to offload initially, but sources told The Times it would amount to around six per cent, or £2.5bn.