UK chancellor Jeremy Hunt’s ‘Tell Sid’ sale of NatWest Group shares to retail investors, which is planned for later this year, faces a difficult timetable and the risk of investor apathy.
According to reports over the weekend, the Treasury could launch the sale as soon as before the summer and a UK election later in the year, which must be held by January 2025 at the latest. It has invited investment banks to submit proposals for how such a sale could be structured.
The UK government still owns 36% of NatWest, which was formerly known as RBS when it was nationalised during the 2008 financial crisis. The bank is operating without a permanent CEO following the departure of Alison Rose following a debanking scandal involving former UKIP leader Nigel Farage. Interim CEO Paul Thwaite is due to lead the bank until July.
Any sale of the government's holding is unlikely to occur before a permanent CEO is installed.
If it goes ahead, selling NatWest shares en masse to retail investors will hark back to the days of Margaret Thatcher’s ‘Tell Sid’ privatisations of the 1980s and 1990s, when the UK sold off its water companies and other utilities such as British Gas, as well as flag carrier British Airways. Incidentally, NatWest was one of the banks through which people could subscribe for shares in British Gas's 1986 flotation.
More recently, the coalition government under Conservative prime minister David Cameron sold off Royal Mail via a £2bn IPO in October, a deal which quickly turned into a political furore as the government was accused of selling the shares too cheaply the company surged in the aftermarket.
In an election year, a NatWest share sale will suffer from a fundamental contradiction. The stock is unappealing, particularly compared to stronger UK banks such as Lloyds Bank, which the UK government exited successfully in October 2016.
The Farage fiasco harmed NatWest’s share price, which is 26.4% below where it was one year ago, although 19.3% above the price where the UK government last sold £1.1bn of shares in May 2021. The bank’s price to book ratio is languishing at around 0.63.
To ensure the success of any retail offer, the Treasury will have concede a discount big enough to make the deal appealing to attract enough ordinary UK investors, who seemingly prefer property or cryptocurrency, to make the transaction successful.
One of the foremost mandates of an orderly exit from NatWest is to ensure value for money for the taxpayer, and there is a very real risk that any sale of NatWest shares to retail investors could be portrayed as a desperate election year giveaway to the sorts of people with enough spare cash to punt on the stock market — namely the older, wealthier ones; those that are more likely to vote Conservative.
It would be far more responsible for the UK government to make sure that NatWest appoints a credible new CEO and that the bank lifts its flagging share price through its commercial performance, ensuring greater value for UK taxpayers over time, no matter who they vote for — it was after all the taxpayer that kept the bank afloat.
The government can then resume its exit programme through blocks and a dribble-outs in a similar way to how the Irish state managed its stake in AIB — an approach much admired in the market.
Much has been made of how to boost the UK's equity markets, from incentivising pension funds to participate more, to encouraging greater retail investment. Interesting policies abound, such as simplifying the tax-free savings scheme by which retail investors can place money; or removing the meagre cap on retail participation in UK ECM deals.
Along with the improvement of NatWest's performance, they are sensible long-term ideas. A cut-price sale of shares in the bank in the short-term will do no good for the bank or the country.