First sale of RBS shares “value for money”, finds NAO

In August 2015, the government sold 630 million shares in RBS (5.4 per cent of the bank) to institutional investors, reducing the government’s holding to 72.9 per cent.

The shares sold for 330 pence each, which represented a 2.3 per cent discount to the market price, and raised £2.1 billion.

However, the disposal of shares was executed at a price £1.9bn less than they cost the government when it bailed out the Edinburgh-based lender at the height of the financial crisis of 2008 at a total cost of £45 billion to the UK taxpayer.

United Kingdom Financial Investments Limited (UKFI), through which HM Treasury has run its interests in all of the financial firms it bailed out due to the crisis, managed the sale.

Having considered disposal options via the public markets, UKFI concluded that an accelerated book-build (ABB) sale to commercial investors was the best option to achieve the £2 billion sale hoped for by then-chancellor George Osborne and announced in his 2015 Summer Budget.

The NAO’s report concluded this had proven to be the correct decision.

The NAO said UKFI chose the August 2015 sale window as market conditions were good after RBS’s half year results, and potential investors were supportive.

UKFI was said to have preferred this window to later options owing to a risk of market deterioration. The NAO also said this proved to be the correct decision as the market did, in fact, deteriorate after the sale and RBS shares traded below the 330 pence sale price after September 2015.

The report also found the eventual 330 pence sale price was “within the fair value range”, although it noted that the range was wide, due to uncertainties about RBS’s future prospects, being between 177 pence and 488 pence, when RBS traded at 342 pence.

The demand in the sale was high and UKFI achieved a smaller discount than in recent privatisations.

The NAO said the price achieved was better than the 4 per cent to 7 per cent range advisers’ estimated, and the 4.3 per cent discount of comparable transactions in the previous 12 months.

Amyas Morse, head of the National Audit Office, 14 July 2017, said: “The sale was consistent with HM Treasury’s overarching objective to not be a permanent investor in UK financial institutions, and UKFI’s objective to execute a strategy for disposing of investments in an orderly and active way. It was executed as skilfully as could reasonably be expected, and on the basis of the preparation, process and proceeds of the transaction, UKFI achieved value for money.”