Well that took longer than it should have. The UK government has finally started selling down its 78 per cent stake in Royal Bank of Scotland. It should have started the process years ago. The shares closed at 338p on Monday. In August 2013 they were trading at around 340p, and in the intervening period there have been no dividends. About ￡31bn of UK taxpayers’ money has been tied up for two years in the bank, with no return. The public would have done better had its money been in a savings account, despite the woefully-low interest rates on offer. The government, it seems, is not a good allocator of investment capital.
An earlier sale would have been beneficial all around. Lloyds Banking Groupshares have risen 11 per cent since the government started selling down its stake in September 2013. In the same period, RBS has lost 7 per cent. True, RBS has been in a much weaker position than Lloyds. But the government stake, and the real (and realised) threat of political intervention in the bank has been a drag on the share price. Freed of that risk, the shares might have performed much better. And by selling down the stake earlier, the government might have enabled RBS to raise equity on the capital markets. It has been unable to do that (imagine the outcry if the government had ended up putting more money into RBS), so it has had to sell assets such as Citizens, its US bank, instead.
One of the reasons that the government may have been holding back is the risk of being seen to sell at a discount to the “in” price of 502p. But this argument was always a red herring. The in price is irrelevant. The government did not invest in the bank in order to make a profit, it invested in order to avoid the consequences of a collapse. With the threat of a collapse gone, there was little reason to hold on. As any reader of the small print of investment literature knows, past prices are no guide to the future. RBS shares may never return to 502p — there is no point assuming that day will eventually arrive. Better for the UK taxpayer to sell out now, and to continue doing so (via quick, cheap institutional placements, rather than lengthy, expensive public offerings) until the stake has gone altogether.