ONLY last month, a few days ahead of the Royal Bank of Scotland’s year-end results, Manus Costello, a City analyst, suggested that it would be a good time for the UK government to be offloading its shares, even at a loss.
The shares were priced at around 28p, pretty well the same as they are now, notwithstanding a bit of interest yesterday following the latest reports that the government is deep in talks with investors in Abu Dhabi, now understood to be the royal family.
Costello appeared to be arguing that there are few factors at play that would give a meaningful lift to RBS shares and if they are to remain lodged well below their break-even price of 50p the government may as well cut its losses and replenish the Treasury’s vaults.
While understanding the attraction of getting something back now rather than wait perhaps a decade for a better return, this column offered the option of finding a willing investor, most likely from overseas, who would buy a slug of shares at a premium. This could encourage other buyers into the market and thereby raise the price that would be achieved on the remaining stock.
Would it work? City analysts are divided on the merits of an early sale, though investors are broadly wary. More than two-thirds of 200 fund managers surveyed earlier this month said they would not buy the state’s shares in RBS even if they were sold at the break-even price.
Shareholders are supposed to invest for the longer term and City analyst David Buick was apoplectic yesterday over the BBC’s excitable claims that a deal with Abu Dhabi would be thrashed out by the end of the year. Buick told Sky News (clearly irritated that it didn’t break the story) that “either the government or UKFI have been misquoted, or are just ruminating on options, or both are totally insane”.
Buick is never known to equivocate and as one the City’s veteran players he has been around long enough to separate rumour from fact. Those close to both the Treasury and UK Financial Investments, which manages the taxpayers’ stakes in the banks, appeared to support his scepticism by playing down expectations of an early agreement.
That said, it is known that talks with potential investors have been ongoing for some months and the leak of the Abu Dhabi talks suggests somebody wants to see the process pick up speed.
The question then switches to whether or not the government should be selling to a foreign buyer. I have maintained for some time that this has been a likely outcome, either as a voluntary sale or ultimately by the Treasury being made an offer it could not refuse.
So with City fund managers ruling themselves out at 50p, what should the government do if a willing sovereign wealth fund comes calling?
The taxpayer has shouldered the burden of bailing out RBS and deserves some reward, but not at any price. The government should resist offers that would benefit the bargain hunter seeking a quick profit over those who kept the bank in business.
Post haste delivery of Royal Mail price rises
HAVING a few letters to post to city centre addresses the other day, it occurred to me that it would be cheaper, even with the soaring price of fuel, to get in the car and deliver them by hand. I suspect a lot of small firms will be making similar decisions by the end of next month when the cost of posting a first-class letter will rise from 46p to 60p and second class from 36p to 50p.
The new Royal Mail regulator Ofcom was expected to introduce a lighter touch regime in response to concerns that over-supervision would hinder the company’s competitiveness ahead of privatisation.
So it is probably no surprise that Royal Mail is being handed some greater flexibility over pricing. This was a trade-off for it maintaining the universal service which would otherwise be uneconomic.
But it looks like a deal too far for those who believe Ofcom will have a job on its hands ensuring the right balance between providing a universal service and the affordability of postal services.
The latest rises are another step on the road to privatising Royal Mail, but they are bound to force some businesses to look at cheaper alternatives.