Santander UK – leading RBS and Lloyds back to normality?



Despite some progress on cranking up the sale of trust ports, privatisation has had a tricky time of late. Enough has been written recently on the ASI blog about forestry privatisation and the strikingly poor way in which the policy has been presented. In any event, any sales proceeds would have been very modest in the context of the UK’s public sector net debt. But, for the Treasury and other ardent privatisation advocates, there is one very big privatisation game in town – the banks.

Key to progressively returning the 83% publicly-owned RBS and the 41% publicly-owned Lloyds to the private sector – worth a combined c£55 billion - will be the response to the recently announced intention to sell part of Banco Santander’s UK operations. It is envisaged that perhaps 20% of the shares will be sold in the latter part of 2011, raising c£4 billion. The Treasury will be watching the institutional response to this planned Initial Public Offering (IPO) like a hawk. In particular, Santander UK owns Abbey National, which – as a leading mortgage lender – has much in common with Lloyds’ Halifax.

During the autumn, it is expected that the Independent Banking Commission will be reporting – it seems unlikely that any of its recommendations will be allowed to interfere with the IPO of Santander UK, which is predominantly a retail bank. And, if Santander UK’s IPO goes swimmingly, expect the Treasury to consider seriously off-loading the initial tranche of its 41% Lloyds’ holding.

Given its c£230 billion involvement in the Asset Protection Scheme, selling large chunks of RBS will be a tougher nut to crack. Since the Government advanced over £45 billion of taxpayers’ money to save RBS, it will be keen to be re-imbursed once the share price rises sufficiently. Expect Santander UK to receive a lot of TLC in the near future.