Saturday, 13 June 2015

"Rothschild massaged RBS sale figures"

The loss to the taxpayer occasioned by the rush to sell RBS shares is closer to £14bn than £7bn according to Jim Armitage, City editor of the Independent and London Evening Standard. He wrote yesterday:

You may have spotted yesterday that, unlike the rest of the media, this newspaper’s coverage of the RBS shares sale did not refer to the “£7bn” loss taxpayers would make on the deal.

The reason was this: I didn’t like the way Rothschild – the government’s advisers – massaged the numbers. The loss the public should be told about is far higher.

Firstly, Rothschild blended the good bank bailout investments (Lloyds, the former Northern Rock and Bradford & Bingley) with the bad (RBS) to get a nicely scented overall figure showing that we’ve made a tidy profit of £14bn on our interventions.

It should not have done. The privatisation Rothschild was asked to explore was that of RBS, and RBS alone, not some irrelevant, sweetened mixture.

Even then, the multiple bank bailout calculations failed to include the £17bn cost of funding the £108bn or so cash the government had to find to buy the shares.

Rothschild also muddies the extent of our losses on RBS by including the “cash and fees” we taxpayers received from the banks in return for the state guarantees we gave them. This too was tricksy accounting.

Sure, this too-big-to-fail insurance (which allowed the sickly banks to borrow more cheaply than they otherwise would) didn’t cost the country any actual cash, but it was still a liability.

Meanwhile, in its tables on the finances, Rothschild gives the impression that these fees were a return on the money we taxpayers spent on the shares. They weren’t.

Ignore them and focus on the numbers that are relevant to how much we stand to lose by selling the shares now.

We paid £45.8bn for them; they are now worth £31.6bn. That means a £14.2bn loss.

The lesson from the Rothschild report? Be sceptical when big City banks advise you to sell to big City banks.

I'm with Armitage when he deprecates the rush to sell RBS shares. All the signs are that international business is taking a pause after the surge out of the 2007/8 confidence crash. Far better to wait for a couple of years when the cycle should be on an upswing again. Armitage sees the spreading of the sale as a hopeful sign

bankers predict it will be five to seven years before the entire RBS stake is sold.

This may not be what RBS management wants to hear, but a lengthy, staged sale is vital to get a good outcome for taxpayers. Unlike with Royal Mail, it means there is a far better chance of avoiding the galling prospect of a state-owned asset being largely sold at what transpires to be too low a price.

It would also ensure that the country gets to share in more of the upside from the remainder of RBS management’s restructuring programmes.

The danger is that the Chancellor takes the price achieved by sales during 2015/16 as indicative, and subsequently places shares at that level privately as was done with the initial Royal Mail offer.

No comments: