Taxpayer loses £2.1bn after government sells 7.7% of RBS holding

The government spent �45bn on bailing out RBS during the financial crisis of 2008. Picture: Getty
The government spent �45bn on bailing out RBS during the financial crisis of 2008. Picture: Getty
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The government has sold a 7.7 per cent stake in Royal Bank of Scotland – at a £2.1 billion loss to the UK taxpayer.

UK Government Investments (UKGI) confirmed the “successful completion” of the disposal at a placement price of 271p per share.

The sale of around 925 million shares will bring the public holding in RBS down from about 70.1 per cent to 62.4 per cent, with proceeds of £2.5bn. It comes at a £2.1bn loss to the UK taxpayer, with the government having paid an average of 502p per share during its bailout of RBS. The total loss is expected to hit around £26.2bn. The government hopes to have sold around two-thirds of its stake by 2023.

The government bought its stake in the bank for £45bn in 2008 as part of a bailout at the height of the financial crisis.

This week’s share sale is the first time that government holdings in RBS have been offloaded since 2015.

RBS chief executive Ross McEwan said: “I am pleased that the government has decided the time is now right to restart the share sale process. This is an important moment for RBS and an important step in returning the bank to private ownership.

“It also reflects the progress we have made in building 
a much simpler, safer bank that is focused on delivering for its customers and its ­shareholders.”

Chancellor Philip Hammond said the sale was also a “significant step” in “putting the financial crisis behind us”.

He said: “The government should not be in the business of owning banks.

“The proceeds of this sale will go towards reducing our national debt – this is the right thing to do for taxpayers as we build an economy that is fit for the future.”

RBS shares slumped in the wake of the news, ending the day 5.3 per cent lower.

The share sale had been widely expected after RBS reached a $4.9bn (about £3.6bn) settlement with US regulators last month over allegations it mis-sold mortgage-backed securities in the run-up to the financial crisis.

The settlement removed a major hurdle to the bank’s return to private hands, but the timing of the sale has still raised eyebrows.

Only last week, RBS’s outgoing finance chief, Ewen Stevenson, said the recent slump in European stocks – sparked in part by jitters over the rise of Eurosceptic parties in Italy – might cause the government to pause.

Michael Hewson, chief market analyst at CMC Markets UK, said the share sale restart was “always going to be controversial”, but added it “probably needs to be measured against what the economic cost might have been if the bank had been allowed to fail”.

He said: “Given the current size of the bank relative to its size ten years ago, the bank’s ability to generate the type of profits required to justify a return to its break-even price is going to be extremely difficult, if not next to impossible to achieve.

“Ultimately taxpayers and politicians of whatever persuasion need to ask themselves if a £2bn to £3bn loss on this particular stake is a price worth paying for a smaller, ­safer bank, as well as banking system, with the upside that the billions of pounds it unlocks can be better used for things like the NHS, and other public services.”