GEORGE Osborne should be commended for deciding to start offloading Royal Bank of Scotland from taxpayer ownership even if it means taking a loss on the amount the state pumped into the bank in the crash. The “controversy” about such a loss is really only an exercise in sterile outrage, even a bit synthetic in the real world, that doesn’t help the recovery of RBS and its contribution to the UK economy.
As many realists have said, who’s to say when RBS’s shares would be trading at above the £5 taxpayer buy-in price (they are currently around 360p), and even if they manage it, there’s no guarantee they will stay there.
Hanging around, as the Chancellor says, “waiting for something to turn up” to get the bank’s share price moving up again just delays the desired endgame of the state exiting the bank. Instead, he has taken a strategic decision that is right in the medium and long term even if with a certain amount of short-term public relations pain.
When the selldown of the 79 per cent taxpayer stake in the bank begins it will have immense psychological benefit in drawing a definitive line under the crash that RBS, with its £24 billion record British deficit and £45bn state bail-out, symbolised more than any other UK bank. So what that we only get £32bn of that money back? I hadn’t personally noticed any money had left my wallet.
At more than £2 trillion, the bank had the biggest bank balance sheet in the world at the time of the bailout. With a bloated 154 per cent loan-to-deposit ratio it was joined at the hip with the wholesale funding markets just when the latter were at their most volatile.
RBS’s core tier one capital ratio, the financial buffers supporting its loan book, had fallen to just more than 4 per cent, a laughably low figure compared with comparative levels in the industry now of 11, 12 per cent etc. Other banks benefiting from a taxpayer lifeline – Lloyds, Northern Rock and Bradford & Bingley – caused shock, but it was of a different quantum than RBS and with nowhere near the same symbolism.
As such, it will be good for RBS and good for wider society for the bank to come back into private ownership. And, as Osborne points out, the government will still make an overall profit of £14bn on its rescue of the four banks in 2008.
That is clearly the more relevant touchstone for the taxpayers’ crucial intervention and gradual exit from the troubled banking sector.
As the state’s stake in RBS is steadily reduced, probably taking years, the bank can more easily get on with the job of being a pivotal player for households and small businesses in the financial sector.
As the Institute of Economic Affairs said last week: “The losses being crystallised by the government as a result of selling [RBS] at the current price are the result of the mistakes of the past and will not magically disappear by the government holding on to the stake in the bank.” Quite. «