March 14, 2012 10:19 pm

UKFI looks at early sale of RBS stake

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Privatisation of Royal Bank of Scotland could start sooner than expected after the organisation charged with managing the government’s bank stakes said shares could initially be sold at a loss.

UK Financial Investments signalled that the Treasury may be willing to offload an initial tranche of shares for less than the average 50p price paid after RBS was bailed out in 2008.

Jim O’Neil, who oversees the government’s holding in RBS and Lloyds Banking Group for UKFI, said the share price was only one factor in the decision on when to start disposing of the 83 per cent stake, and that generating value for money over the entire disposal programme was the main goal.

He said that an early sale below the price paid by the government would hopefully pave the way for future disposals at a higher price.

“There are no fundamental constraints to selling shares at any price,” he told the Treasury select committee.

His comments followed a burst of speculation on how and when the government would sell down its stake in RBS after Vince Cable, business secretary, floated the idea of breaking up the bank.

UKFI officials told MPs they did not expect a radical restructuring of RBS before it returned to the market.

The organisation also said it would consider whether executive bonuses at RBS should be linked to the return of taxpayers’ money. Mr O’Neil conceded that making bonuses conditional on retrieving the £45bn of state funds from the bank would appeal to taxpayers and said he would give further thought to the proposal from Andrew Tyrie, who chairs the committee.

“I see it is something taxpayers would feel more comfortable about,” said Mr O’Neil. “We will take it back – it is something we have considered.” However, he added that given the current share price – which is about 26p, roughly half the average price paid by the government – meant RBS had to have “realistic” incentives.

Senior executives at RBS have opposed the notion of linking bonuses to privatisation as the bank has no control over the sale of the government stake.

Mr Tyrie said that aligning bonuses with the return of taxpayer money would mean the public would not “begrudge” bonuses. “When taxpayers get their money back they will be less unreceptive to higher awards,” he told the FT following the hearing.

His comments follow the bitter row that erupted over pay at RBS earlier this year, which culminated in Stephen Hester, the bank’s chief executive, succumbing to intense political and media pressure by waiving his £960,000 bonus.

Robin Budenberg, chief executive of UKFI, who is set to become chariman later this year, said he was confident that the row had not undermined the ability of the RBS board to run the bank commercially.

Mr Budenberg said he saw UKFI’s role as a “nuclear deterrent” against the government trying to run the bank on non-commercial grounds. “Inevitably when you have an 80 per cent government shareholding there are stresses and strains,” he added. “I think, if you talk to the board of RBS, they feel they can run the bank on a commercial basis – but there are some areas that they clearly have to be more sensitive than others.”

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