George Osborne has unveiled plans for a £2bn sale of taxpayers' shareholding in Royal Bank of Scotland (RBS) in a symbolic moment that will crystallise a substantial loss on the stake.
Confirming widespread expectations that he would begin the processing of selling the shares this week, the Treasury said after the stock market closed on Monday that it would sell a 5.2% stake in RBS to City investors.
Directors of UK Financial Investments (UKFI), the agency which manages the state's 79% stake in RBS, held talks on Monday to sanction the move.
Details of the price obtained in the share sale will be disclosed on Tuesday morning, but bankers working on the deal were said to be confident of achieving a price of between 325p and 330p, representing a modest discount to RBS’s closing share price on Monday.
Investment bankers from Citi, Goldman Sachs, Morgan Stanley and UBS are working on the process, known as an accelerated book-build.
A disposal of RBS shares will contain huge resonance in the City, coming nearly seven years after the bank was rescued with more than £45bn of taxpayers' money.
The bailout took place at an average ‘in-price’ of 502p, but the Chancellor said in June that he was no longer prepared to wait for the bank’s shares to recover to that level before beginning the sale process.
Labour warned Mr Osborne against a summer sale of shares in RBS, arguing that it is not "an impossible objective" to recoup the public's investment if a disposal is delayed.
Speaking to Sky News, Chris Leslie, the shadow chancellor, said the Treasury's "haste" would need to be justified if it began selling the Government's stake ahead of a multibillion pound settlement with US regulators for mis-selling securities before the financial crisis.
Mr Leslie said he found it difficult to understand the sense of urgency with RBS shares trading so far below the taxpayers' 'in price' of 502p.
"The Chancellor will need to justify his haste if he sells off a chunk of RBS before the US settlement and when the market is less liquid.
"Taxpayers want their money back and I just don't believe this is an impossible objective," he said.
"Why this rush to sell when the share price is so far below that paid at the time of the rescue? RBS had to be bailed out urgently, but it doesn’t have to be sold off at the same speed."
Mr Osborne announced in his Budget last month that he would offload at least £2bn of the bank's shares by next April.
A Treasury spokesman said: “UK Financial Investments (UKFI) today advised the Chancellor it would be appropriate to conduct the first sale of the Government’s shareholding in the Royal Bank of Scotland. The Chancellor agrees with that advice and has authorised the process to begin.
“The government set out its objectives for its shareholdings in the banks in the Chancellor’s annual Mansion House speech in June 2013 – getting the best value for the taxpayer, maximising support for the economy and restoring them to private ownership – and as set out in that address, the government will only conclude a sale if these objectives are met.
“In his Mansion House speech in June this year, the Chancellor announced his intention to start returning RBS to the private sector in the coming months, following advice from the Governor of the Bank of England.”
Last week, RBS unveiled a half-year loss after taking a string of charges for mis-selling and restructuring, and signalled that dividend payments would not restart until 2017 at the earliest.
Mr Osborne is determined to head off criticism about the sale of an initial tranche of RBS shares at a loss.
In a report he commissioned from Rothschild, the investment bank, his advisers concluded that disposing of the taxpayer's entire stake in the bank would crystallise a £7bn loss if fees paid to the Treasury since 2008 were taken into account.
They added, however, that the Government could make an overall profit of £14bn from its bank rescues, which included the emergency bailouts of Bradford & Bingley, Lloyds Banking Group and Northern Rock.
That view was immediately challenged by Andrew Tyrie, the Treasury Select Committee chairman, who argued that the projected surplus did not include the cost of financing the acquisitions.
"The start of a sale programme can send a strong signal that the bank is making strong progress in its restructuring and is well on the way to recovery," Rothschild said in its report recommending that the Chancellor kicks off the sale.
"Any residual impression amongst investors that the bank may not be run for purely commercial purposes is likely to evaporate very quickly".
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