RBS signals government could sell taxpayer stake next year

Bailed-out bank's chairman uses strongest language yet to talk of sale, as RBS reports first-quarter profits of £826m

Royal Bank of Scotland has given the clearest signal yet that the government is preparing to sell off part of the taxpayer's 82% stake in the bailed-out bank next year.

As the Edinburgh-based bank reported a profit of £826m for the first quarter compared with a £1.4bn loss the same time last year, its chairman, Sir Philip Hampton, said RBS could be ready for sale from the middle of 2014 – or even earlier.

At the 2012 results in February, Hampton had said the bank hoped to be ready for sale in 2014, but he used more definitive language on Friday, raising the prospect of drawing up a prospectus for shareholders "from the middle of 2014".

RBS shares were trading at 294p on Friday morning – below the 500p average price at which the taxpayer bought the stake during 2008 and 2009.

"It could be earlier. We think the recovery process will be complete in about a year or so's time," he said.

A prospectus contains all the details about the bank's financial performance and would be needed to     be sent to prospective shareholders if the shares are to be sold off.

The government will need to decide the price at which it wants to sell any shares, which closed on Thursday at 307p. This is below the 500p average price at which the taxpayer bought the stake during 2008 and 2009 – the equivalent to a £17.5bn loss.

But in March it emerged that government had reduced the average price to 407p.

The shares fell further after the results were announced to 294p, widening the loss to £19bn, partly on slower than expected growth in revenues.

Ian Gordon, banks analyst at Investec, said: "Underlying trends are weaker, with operating profit of £800m – down 28% – a £400m consensus miss. The markets division [pre-tax profit down 64%] looks awful. Fresh speculation that the UK government may start off-loading its stake in RBS and/or its 39% stake in Lloyds at a loss is negative for shareholders."

Stephen Hester, the chief executive of RBS, said the group was "back in profit … a big change on recent times".

"The cleanup mission is nearing its successful completion," he added, with £900bn taken off the bank's balance sheet which was £2.3tn at the time of its £45bn taxpayer bailout.

Hester said there had not been any recent discussions with the government about the timing of any nature of any share sell off – although there is mounting speculation that the chancellor, George Osborne, wants a sale before the election.

"It is our view that privatisation would be a terrific thing for the country both psychologically and taxpayers money be freed up for other needs," Hester said, insisting that £500bn of financial aid to RBS in the form of liquidity and toxic asset insurance had already been removed.

The £45bn of taxpayer money ploughed into the bank's shares was still "left to go" and a complete share sale would likely take a number of years.

"Privatisation is a good thing for RBS as well the country," he said. He added that the decision lay with the government, which is expected to sell off the shares in tranches, with the first one possibly at a loss.

But Hester, who said the slow economy and tougher regulations had made all bank shares less valuable, said that by the time the entire stake was sold taxpayers should get their money back.

There were still "bumps in the road", said Hester, who was parachuted into RBS at the time of the October 2008 bailout to replace Fred Goodwin.

"There is hard work still ahead for the economy and our industry. Nonetheless, our sights are set on moving RBS beyond its restructuring phase towards the ambition of building a really good bank for customers and for all we serve.

"These results show pleasing progress in delivering a strong and valuable RBS for all our stakeholders. We expect to substantially complete the bank's restructuring phase during 2014."

A number of question marks still hang over any share sale. The Prudential Regulation Authority, the new City regulator, is still in discussions with the industry about how to plug a £25bn capital shortfall it has identified across the industry. The parliamentary commission on banking standards is due to report next month and has been asking questions about whether RBS should be broken up into a good and bad bank. The proposals from the independent commission on banking to implement a ringfence between high street and investment banking still need to be implemented.

The bank did not make an additional charge for payment protection insurance on top of the existing £2.2bn, although it put aside an extra £50m for insurance rate swap mis-selling.

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Article source : http://www.guardian.co.uk