RBS share price: The long and winding road to private ownership

on Apr 10, 2015
Updated: Oct 21, 2019

The delayed return of Royal Bank of Scotland Group Plc (LON:RBS) to private ownership following the blue-chip lender’s £45-billion taxpayer-funded bailout during the financial crisis could fall into the hands of a Labour government, with polls suggesting that the election result is too close to call.

While Chancellor of the Exchequer George Osborne has called for an early sale of the government’s stake in the lender following next month’s election, RBS’ share price, which has been hovering around the 350p-level, is still well below the taxpayer’s break-even price. To recover the money pumped into RBS in 2008, the government would have to sell the shares at an average of 455p apiece.
RBS is still 80 percent-owned by UK taxpayers after the previous Labour government rescued the lender during the financial crisis in 2008. Transcripts of meetings of the Bank of England’s Court of Directors from 2007 to 2009, made public earlier this year, revealed that the blue-chip lender was meant to return to private ownership within six years of its bailout. The six-year deadline, however, passed in October last year, with RBS still a long way from profitability.
While the company’s chief executive Ross McEwan has been trimming the company’s riskier assets and looking to refocus the lender on its domestic market, RBS earlier this year posted an attributable loss of £3.5 billion for 2014. On the upside, the loss was smaller than the £9 billion loss recorded for the prior year period. Further complicating the return to private ownership are RBS’ costs for past misdemeanour with the lender booking £2.2 billion in litigation and conduct provisions last year. In October, McEwan said that the bank was braced for further litigation conduct costs over the next 18 months.
Last month, Osborne admitted that he had made a mistake in not completely restructuring RBS following the lender’s bailout, and going along with RBS’ insistence at the time that the investment bank was going to be a viable business. The Chancellor has said that he wants to ‘get rid’ of the state-controlled bank as swiftly as possible should his Conservative party with the election.
Getting rid of the government’s stake in RBS, however, could potentially fall into the hands of the Labour Party and Ed Miliband who has pledged to break up the country’s biggest lenders and defer bankers’ bonuses if he wins the election. RBS’ biggest private shareholder, however, sees a Conservatives government as the better alternative for the FTSE 100 lender.
“Having the Conservatives in power is better than Miliband,” Daniel O’Keefe, a co-founder of Artisan Partners LP who helps oversee a three-percent stake in RBS, the largest holding after the UK government’s, told Bloomberg earlier this year. While RBS “is going to be fine no matter who is in the government,” a Labour administration would be worse for Britain’s banks, he added.
As of 09:18 BST, Friday, 10 April, Royal Bank of Scotland Group share price is 348.80p.