RBS – Rapidly Bury Story

 

It’s fair to say that last week was a great week to bury a story given that the press and media were drinking large quantities of the General Election-May-Corbyn-Farron-Sturgeon political cocktail that were being swilled with vigour.

 

Enter Chancellor Philip Hammond armed with the biggest spade he could get his hands on to do just that……bury the ugly story. No surprise that it was linked to the banking sector!

 

In short, we still have a 72% stake in Royal Bank of Scotland (RBS) which was bought for £45 billion in 2008 at the height of the financial crisis at 502p per share. It is currently trading at around half of that at 246p per share.

 

Despite this, the Chancellor has stated previously that the Government did not expect to offload its stake in RBS until after 2020 as “we are making real progress in realising our holdings in the banking sector.”

 

However, in a political u-turn (quelle surprise!) the Chancellor has admitted for the first time that the Government is prepared to sell its stake in RBS at a loss.

 

At face value, there is a perception that there is not much to be positive about:

 

• In February 2017, RBS posted its ninth consecutive annual loss (£7 billion).

 

• RBS has racked up losses of more than £50bn since the Government bailout.

 

• A potentially huge fine by the US Department of Justice is in the post.

 

 

Philip Hammond told MPs on Tuesday within minutes of the General Election announcement: "Our policy remains to return the bank to private hands as soon as we can achieve fair value for the shares, recognising that fair value could well be below what the previous Government paid for them. We have to live in the real world and make decisions on the future of our holding in RBS in the best interests of taxpayers."

 

There will (eventually) be many negative headlines about this. There has to be given the negative angle our press / media are obsessed with to the point of addiction.

 

However, there is a counter argument to this. The large Government stake is contributing to RBS's share price weakness as no one wants to buy shares when you know that there is a massive seller waiting to offload three quarters of all the shares!

 

Perhaps, selling RBS at a loss is a medicine that may taste unpleasant but is worth taking for the longer term good.

 

Perhaps.