When UK chancellor George Osborne announced he was bringing forward the sale of RBS, a few people, this newspaper included, questioned why, after seven years of mismanagement, the time was right to sell.
Following the placement of 5.4% on Monday evening at a share price of 330bp, plenty of others have asked questions about how much the taxpayer stands to lose on the deal.
Lots of the commentary focuses on the UK government’s entry price of 502p, but this is wrong. The government did not choose the entry price; even if it had, this figure incorporates the value to the wider economy and financial stability of saving RBS.
What matters now is simply achieving the maximum price possible, and Osborne may be playing a longer game than his critics are giving him credit for.
Drip-feeding RBS into a (hopefully) rising market, as the bank refines its strategy, finishes its surgery, and puts conduct issues behind it is not necessarily a bad strategy.
RBS’s new owners will demand more performance than the government has, and may focus the minds of management on banking, rather than politics. There is little fat left on RBS; surely the turnaround might well start here.
Most importantly, the sell-off is big, and will run and run.
Disposing of RBS is not just simply about waiting for the stock to go back up and flogging it all in one go – a clear, well flagged move to cut the government’s stake (with a handy loss leader to begin with) should help investor certainty, cutting out some of the “overhang uncertainty” that has been in the price since the government took over.
It’s too early to say that all subsequent stake sales will be keenly priced to squeeze every penny out of the market – indeed, with £28bn still to do, it’s very unlikely.
But it’s never good practice to try to wait for the top of a rally, especially with this many shares to move, and in hindsight, this could look like a smart move. The biggest privatisation in British history has begun, and we shouldn’t judge it until it’s over.