| LONDON, March 29
LONDON, March 29 Britons take a dim view of the
billions it cost taxpayers to rescue the banks four years ago,
so they will take some convincing if the government sells a
stake in bailed-out Royal Bank of Scotland at a loss.
Britain and Abu Dhabi are holding talks on the sale of
shares in the troubled bank, which required a 45.5 billion
pounds ($72.4 billion) taxpayer lifeline during the 2008
financial crash, leaving the state with an 83 percent
Speculation that Britain's cash-strapped government could
sell between 5 and 10 percent of the bank has risen in recent
weeks, but there is little chance the UK will achieve the price
it originally paid any time soon, raising the possibility the
taxpayer might be asked to shoulder a loss on the investment.
At a time of harsh austerity measures to address a chronic
budget overhang, critics would have a field day. And while stock
markets might welcome the move as a sign that the government
would interfere less in the running of the bank, voters might
prefer the state to maintain some influence on the bank's
Prime Minister David Cameron's coalition government is
already under pressure after a Conservative fund raiser was
secretly filmed offering access to the party leader for
And last week Finance Minister George Osborne made it harder
to sanction a loss-making sale by drawing attention to the
ill-timed sale of gold reserves by former Labour chancellor
He might still be able to get away with a writedown if the
sale cedes minimal control in the strategically important
"First, what is the cash loss for the taxpayer, if any?
Secondly, if a foreign investor takes a significant stake in
RBS, can they strategically influence this major high street
bank on which British citizens and companies depend?" said David
Ruffley, a member of parliament's influential Treasury Select
Committee financial watchdog.
"The answers to those two questions will determine the
public and political response," he added.
Shares in RBS currently trade at around 29 pence, far below
the 49.9 pence the government paid for them. Details have yet to
emerge on how much Abu Dhabi might offer, but reports indicate
an overall 10 billion pound investment.
A deal is not expected for at least another few months, a
source told Reuters earlier this week.
John Redwood, a prominent parliamentarian and a vocal critic
of the state's handling of RBS, said the sale of part of
Britain's stake at a loss would not necessarily be damaging for
the Conservative-led coalition government.
"The terms are going to be quite important. One would need
to know how big a loss there was on the shares they were
selling, and secondly what the conditions were relating to the
sale," said Redwood, who, like Osborne, is a member of the
Redwood wants Britain to retain the ability to break the
lender into smaller banks to boost competition in the sector,
one of several proposals that would transform RBS into a vehicle
to increase lending to businesses and stimulate the economy.
Commentators speculate that such proposals, including one to
give RBS shares away to the public, could form part of the
government's disposal strategy as they would soothe misgivings
over a sale at a lower-than-expected share price.
Along with other British banks, RBS is facing the separation
of its investment arm from its less lucrative retail operations
as reforms are enacted to shield the public from the riskier
investment banking - sometimes referred to as "casino banking" -
blamed for the 2008 financial crash.
George Mudie, another Treasury Select Committee member and a
member of the opposition Labour party, said that raises "big
questions" on the future value of RBS shares, an argument that
could justify a lower sale price and mitigate against criticism
of taxpayer losses.
"Speaking personally, I would be very pragmatic about an
offer, but not softly or weakly so ... I think it would be
sensible to keep an open mind," he said, adding that he would
object to an offer at the current market price.
Hopes that RBS shares would recover quickly after the
financial crisis have dimmed, and the fallout from the
euro-zone's debt woes has prompted many to conclude it could
take a decade or more for the shares to get back to the level
Meanwhile, calls are growing for the cash-strapped
government to dispose of its stake. Earlier this month, RBS
chief Stephen Hester told Reuters the faster the government
starts selling, "the better for everyone".
The benefits of starting a sale early would be to reinforce
that Britain does not want to be a long-term investor, and by
grabbing a major "anchor" investor it would signal that private
investors see it as a viable investment again.
That could act as a loss leader that ultimately boosts RBS
shares and in the long run helps Britain make a profit on future
A deal could also be structured so an initial investment
could be added to later if shares rise or RBS's performance
improves. That is how Abu Dhabi made a big profit on a 5 billion
pound bet it took on Barclays in 2008.
Some Treasury officials have said the government is happy to
hold onto its RBS shares until prices have risen.
But some shareholders want a sale sooner rather than later.
"Having another major holder ... would reduce the spectre of
another slide towards nationalisation at some future point. I
think a sale would also signal the first step towards RBS being
a 'normal' investment again," one RBS investor said.
STORM IN A TEA CUP?
Despite the arguments for an early sale at a loss,
significant political risks remain that threaten the
government's standing with the public as well as the
Conservatives' relationship with the Liberal Democrats, the
junior partner in Britain's coalition administration.
"My benchmark is how will this go on the high street? And
the fact is that nobody would buy that argument at all," said
Mark Garnier, a Conservative parliamentarian and Treasury Select
"If any part of that stake was sold at a loss ... I think
there would be a huge outcry," he said.
Labour's finance spokesman Chris Leslie has said it is
"vital" that the government recoup the money they invested in
RBS, while the Liberal Democrats say they would reject what they
saw as a poor deal.
The party has in the past called for the bank to be fully
nationalised and directed to increase business lending to boost
the economy, or for the bailed-out banks' shares to be given to
"I would fiercely resist it if I thought it was a bad
deal," said Richard Newby, a Liberal Democrat legislator in
parliament's upper chamber, the House of Lords, adding that the
current share price was "not desperately healthy".
Resistance has its limits, however, when the Lib Dems know
that abandoning their partnership with the Conservatives could
bring upon their own heads a disastrous general election, given
their parlous poll ratings.
The government will also be encouraged that opponents made
little capital out of Osborne's sale of nationalised bank
Northern Rock last year at a loss of at least 400 million
Some calculate that former Prime Minister Gordon Brown cost
the taxpayer billions in 1999 when he sold gold reserves shortly
before the asset surged in price, but it didn't stop the party
comfortably winning the following two general elections.
"There would be criticism; that's just the nature of it.
Would it do sustained damage to the government over a protracted
period of time? Very unlikely," said Alastair Newton, a former
British government official who is chief political analyst at
Japanese bank Nomura.
"It's not political suicide. It may be a storm in a teacup,
but that will about be the extent of it."