Given their scope to deliver much-needed proceeds, there is pressure upon the Treasury to begin the process of selling down the Government’s 83% stake in Royal Bank of Scotland (RBS) and its 40% stake in Lloyds. It will be a very challenging process – especially for RBS.
Ironically, the first thing for the Government to do is – nothing. Just watch how the putative c£16 billion Initial Public Offer (IPO) of Santander, the owner of Abbey National, proceeds – the IPO is slated in for 2011.
Assuming that this IPO generates sufficient interest, the Government should seek to place a tranche of Lloyds shares with leading City institutions.
Only then is it sensible to tackle RBS – a bank, which despite some welcome stability, faces a raft of challenges.
Aside from concerns about bad debts and the Basel 3 funding obligations, RBS’s participation – at £282 billion – in the Government’s Asset Protection Scheme (APS) poses its own challenges.
Furthermore, the Independent Banking Commission should report by next September and may recommend compulsory separation between retail deposit-taking banking and investment – aka casino – banking.
However, given the threats by both HSBC and Barclays to relocate to Hong Kong and New York respectively, it is probable that the risk of losing their valuable tax revenues will prevail over any ideological reasons for compulsory separation.
By the next General Election due in May 2015, the Government should have sold all of its Lloyds’ stake and most of its RBS shareholding. In the latter’s case, the total value of the Government’s shareholding – assuming that the B shares are treated pari passu with the ordinary shares – should exceed £40 billion.
It is a vast sum to raise on behalf of one company, although Brazil’s Petrobras recently managed to bring off a near $70 billion rights issue – a world record.
Can the dramatic bank rescues be reversed by 2015?