Rush to sell RBS may have political motive

Talks with investors in Abu Dhabi could lead to the sale of up to a third of the bank before the end of the year, even though it would mean losing billions injected by the taxpayer in 2008.

The government has been negotiating for months with Abu Dhabi, one of the seven states of the United Arab Emirates, and is keen on a quick deal, according to the BBC.

The report was immediately played down by Westminster sources, who claimed it was “speculative”. The Treasury said the government’s policy “has always been to return RBS to the private sector, but only when it delivers value for money for the taxpayer.”

Talks are known to be ongoing with a number of potential investors, but sceptics said it was not a good time to be selling any of the taxpayers’ 82 per cent holding. A deal at current prices would see half the £45.5 billion investment lost. RBS shares closed at 27.8p against an average buy-in price of 50p. There was talk of a deal being done at 32p a share.

UK Financial Investments (UKFI), which holds the government’s stake, has held regular talks with big investors about their views on the industry and RBS, which has included meetings with sovereign wealth investors.

The Treasury said yesterday its strategy was to repair and return the bank to full health. RBS and UKFI declined to comment.

However, RBS chief executive Stephen Hester said earlier this month that it would benefit everyone for the government to begin selling down its stake in the bank as quickly as possible. Hester, speaking on the sidelines of the British Chambers of Commerce’s annual conference, said: “The faster the government starts selling its stake, the better for everyone.”

His comments came a day after Jim O’Neil of UKFI told a Treasury committee that some shares could be sold at a loss if the aim of getting value from the full share disposal programme was met.

Abu Dhabi invested billions of pounds in Barclays bank during the financial crisis, making a profit on the deal. It helped Barclays avoid falling into government hands.

Despite claims that no deal on RBS was imminent, some observers claimed the government might be keen to offload RBS to the private sector in order to get the ongoing bonus row off the political agenda.

Ministers have struggled in their attempts to force bankers to cut their bonuses and overall pay packages in spite of public outrage and would welcome an opportunity to at least be rid of direct responsibility for bankers’ pay at a time of austerity.

City analysts reacted positively to any suggestion that RBS could be in line for potential investment, but warned against a hasty sale that would undercut the taxpayer.

Simon Denham, chief executive of Capital Spreads, said: “It comes as little surprise that the government is reportedly trying to offload its stake in RBS following the recent furore over its latest bonus payouts.

“The coalition is probably crying out for a buyer, so that it doesn’t have to deal with attacking or even defending bankers in a year’s time.”

But reaction to a potential sale comes amid a general belief that a return to break-even at about 50p is unlikely any time soon.

It is a firm view of the markets that any sale could only be done in stages when the price is right and demand is healthy, and that this would be preferable to a quick deal that might be perceived as a fire sale.

But in view of the profit made on the Barclays investment, analysts believe rich sovereign wealth funds would be keen to take a stake in RBS.

One analyst suggested last month that the government should begin selling down its stake in RBS, even at a loss. Manus Costello of Autonomous said even selling at 27p to 28p per share would knock £500m off public sector borrowing costs.

The investment company Aarbar, controlled by the Abu Dhabi government, took a stake in the struggling Italian bank Unicredit this year and that holding has jumped in value by a third.

Abu Dhabi has the largest sovereign wealth fund in the world. estimated at £550bn.