IT LOOKS like George Osborne wants to wash his hands of the troublesome bailed-out banks and is considering how to offload the government’s shares.
An exit strategy from the banks in some form has always been inevitable and there has been talk of selling a stake to a Middle Eastern sovereign wealth fund or embarking on a Thatcher-style privatisation.
In spite of a succession of scandals, fines and rows over bonuses, shares in RBS have risen robustly since last summer from below 200p to Friday’s close of 344p.
But the government evidently does not expect them to hit their 500p break-even price before the 2015 general election and the Chancellor is getting restless. Not only does he want to distance the government from the continuing misdeeds of the banks, he will see a distribution of shares or cash to voters as a handy pre-election bribe, or as a means to raise funds for other vote-winning purposes.
Treasury sources now say that it has been instructed to draw up a scheme to “give away” the 82 per cent stake in Royal Bank of Scotland that could see everyone with a national insurance number receive between £400 and £800.
A potential fly in the ointment for this proposal is the prospect of Scottish separation. It cannot be assumed with any certainty that Scots would be entitled to the free money or to Business Secretary Vince Cable’s convertible vouchers, especially if implementation of the plan was pushed beyond a declaration of independence. A future Scottish Government may choose to hold on to its allocation of the shares.
Whatever option he chooses, Osborne must be mindful of getting it badly wrong. At current prices the government is sitting on a £14 billion loss on the £45bn spent rescuing RBS in 2008 and the Treasury will not want to weaken its position by repeating its heavily criticised sale of Northern Rock to Virgin at a loss.
If the UK Government is serious about minimising its losses, the better route may be to release shares into the market in tranches similar to the process adopted in the US. Each release of shares helped build demand, allowing the price of each tranche to be raised.
As a result, the TARP (troubled asset relief programme) bailout fund, which pumped $418bn (£269bn) into the US banks, car makers and insurers at the height of the financial crisis, is close to breaking even.
The big US banks have already paid back their loans, and in December the Treasury Department sold its remaining stake in AIG. Furthermore, those companies bailed out by the US government have paid more than $40bn in dividends and interest over the past four years. The US government’s remaining holdings are expected to cover the outstanding losses.
Osborne should initiate a similar plan that would put RBS – and Lloyds – fully back in private hands and help rebuild confidence in the banking system.
Confidence is returning
The mega-deal is back in fashion. The £18bn acquisition of Heinz by Warren Buffett and Brazil’s 3G Capital followed Dell’s £15bn leveraged buyout – the biggest since 2007 – John Malone’s £15bn acquisition of Virgin Media and American Airlines’ £7bn merger with US Airways.
Companies appear ready to release cash reserves built up since the financial crash, an indication that confidence is returning.