London: Royal Bank of Scotland is laying plans for a multibillion-pound share sale that could hand a pre-election windfall to George Osborne.
The taxpayer-backed bank has told its executives to have the business primed and ready to sell shares by the fourth quarter of 2014 — just months before the likely polling day.
At least 10 per cent of the stock is likely to be sold, reaping about £5 billion (Dh27.84 billion) for the chancellor that could help patch up the nation’s finances.
The chancellor is under heightened pressure to kickstart the economy and control ballooning public debts following the decision by Moody’s to cut Britain’s AAA credit rating.
The share sale would be the first return of cash since the government’s £45 billion (Dh250.54 billion) bailout of RBS at the peak of the financial crisis in 2008, which left the taxpayer with a 82 per cent stake. RBS was the world’s biggest bank at the time, with a balance sheet bigger than the British economy.
Under Stephen Hester, the chief executive, the bank has sold about £800 billion of assets — a sum 20 times greater than the coalition’s planned cuts to public spending.
RBS is expected to reveal losses of more than £5 billion this week, thanks to big fines for its involvement in the Libor rigging scandal, compensation for mis-sold payment protection insurance (PPI), and the continued overhang of bad debts from the financial crisis.
It will also reveal plans for a partial sale of its American bank, Citizens, to shore up its capital position.
Andrew Bailey, head of prudential regulation at the Financial Services Authority, has been pressing RBS to consider a sale of Citizens since last summer.
The board has convinced Bailey, newly appointed as deputy governor of the Bank of England, that forcing a quick sale would destroy value for shareholders. Few of the potential bidders are in a position to mount a knockout offer. As a compromise, RBS has agreed to indicate that it will float a 25 per cent stake at some point in the next two years.
Citizens, one of the biggest retail banks in America’s wealthy north-eastern states, is expected to be valued at about £8 billion in the listing.
Canada’s TD Bank is expected to consider a takeover. Last year it hired Lord O’Donnell, the former cabinet secretary, as an adviser. Itau Unibanco, one of Brazil’s biggest banks, is also keen to buy a large US deposit base.
To answer concerns about its capital position, RBS is expected to outline further cuts to its controversial investment bank. John Hourican, chief executive of the division, was forced to quit as part of the settlement over the Libor-rigging inquiry.
The original five-year turnaround plan for RBS put in place by Hester is still broadly on track. Some aspects have been delayed by the eurozone debt crisis but the rapid deleveraging of the bank has exceeded all expectations.
By the end of this year, Hester is expected to wind down the “non-core” division that was set up to house toxic derivatives, troubled mortgages and distressed loans to companies or private equity deals.
Lloyds Banking Group, which is 39 per cent-owned by the taxpayer, is expected to reveal losses of about £500 million this week.
Antonio Horta-Osorio, the chief executive, is expected to say that the bank has worked through most of the problem loans it inherited from HBOS. However, it will have to make provisions for mis-selling complex derivatives to small businesses and further charges related to PPI. Lloyds is expected to signal that it could resume dividend payments within the next 12 months.
The bank results come as Brussels debates new caps on banker bonuses. The European parliament wants them to receive a maximum of the equivalent of one year’s salary.
At meetings this week with the European Commission and the European council, that limit is expected to be pushed up to two times salary.
Big City banks are already planning a response to the rule, which could see them move more jobs away from London to America, Switzerland and Asia.
— The Sunday Times, London