Royal Bank of Scotland is exceptional in so many ways. Sadly none of them is good. In 2008 it had the largest balance sheet in the world. Within months this had led to the UK’s biggest ever banking bailout, and shortly afterwards the heaviest loss in British corporate history. Now, a return to full private ownership would require an operation that George Osborne calculates to be greater than all the 1980s privatisations put together.
The UK chancellor has good reasons for wanting to “get rid” of his stake in RBS, (to use his own, revealing phrase). A straightforward appetite for the proceeds must be one. The billions that the government would realise might fund investment, a repayment of the national debt, or some other, less noble giveaway to voters. Mr Osborne and his prime minister David Cameron judged the sale of shares in Royal Mail a popular success — despite disquiet at the price that was achieved — and have long wanted to repeat the trick. Bringing to an end the state’s ownership of the UK’s most disastrous bank also plays into the story they wish to tell: of a businesslike government clearing up the mess left behind by its sloppy predecessor.
They will also have learnt what an unreliable owner the government is. Even though the Labour administration created UK Financial Investments to manage its stakes in the banks, the stench of political interference always hung around RBS. As every year came around so too would the same public row about bonuses. Whenever the economy faltered RBS would garner some of the blame, usually for failing to lend as freely as the politicians would like. By the time its former CEO Stephen Hester was ejected from the role, few in the City bought the fiction that this was an act of the board and not Mr Osborne himself.
The chancellor would have hoped to have sold more of RBS by now. He regrets not taking an aggressive approach to restructuring the bank earlier in the parliament. This may be retrospective wishful thinking. RBS is a far more troubled beast than its stablemate Lloyds, where the state has steadily reduced its stake. The latter, while behind some of the worst lending decisions of the crisis, lacks the encumbrance of an underperforming investment bank. In 2011 the uncertain regulatory environment impeded efforts to restructure RBS. The Vickers commission was mulling banking reform, leaving the government unable to act first without prejudging its conclusions.
Much is left to do, including the payment of ever more fines for past misdemeanours, and the small matter of returning the bank to profitability. But the skies have now cleared somewhat, with a friendlier leadership at RBS more in tune with Mr Osborne’s vision of a domestically-focused lender. The pace of regulatory change should slacken. The next year may indeed provide a good moment for a partial sale of the government’s stake.
What obstacles remain are a combination of politics and practicality. On the political side the Tories need to abandon their urge to beat the price paid by Labour in 2008. Sunk costs are irrelevant. They must also face down calls to make creative use of this giant bank in the wider economy. RBS finds ordinary commercial pressure quite enough without piling politics on top.
But the practical matter of encouraging investors to pay up for a bank with such a poor reputation will remain a challenge. “RBS” is not a term that many associate with reliability. Mr Osborne may find the task easier if he changed it. “National Westminster Bank” — the biggest brand under RBS — has more going for it.
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