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Experts quizzed by the U.K. government's Treasury Select Committee warned that it could take years for Royal Bank of Scotland Group PLC (RBS) to be fully privatized, as the government tries to balance getting a fair price for its stake while also enticing a suitable buyer.
During a meeting Tuesday, investors, bankers and analysts were asked by the committee how best to proceed with the eventual sale of its 82% stake in RBS. All replied that it was in the bank's best interest that the government reduce its stake to allow the lender to be run along private lines, without political interference. All believed that the sale would also take quite a long time to happen.
A "good strategy is to start disposal at the lowest price and build it up over time," said Adam Young, co-head of equity advisory at Rothschild, adding that it may take up to five years to privatize RBS. Manus Costello, a managing partner at Autonomous, said that a private shareholder could encourage the bank to be run more efficiently and that it was worth the government taking a loss on the sale of its first tranche of shares. He warned against plans to break up RBS as "value destructive."
One option floated was to sell shares to the public, much like during the privatization of British Telecom, as part of the process of putting the bank back on the market. The bank's share will be sold in several tranches, one of which could theoretically be to the public, said Young.
However, it is rare to see transaction of more than GBP5 billion a tranche, said Young, adding, "That implies a lot of tranches." Robert Talbut of the Association of British Insurers warned that it was unlikely that the government would see a profit from its stake in the foreseeable future.
In 2008, the U.K. government pumped GBP45.5 billion into RBS to bailout the bank during the height of the financial crisis. Analysts have since warned that the government's stake is a handicap for the bank.
Over recent months, RBS has been dragged into political debates about executive pay and lending to small businesses.
In March, Jim O'Neil, head of market investments at UKFI, which manages the government's stake in RBS, told a U.K. Treasury committee that he would consider advising the chancellor to sell the shares below the 50.2 pence price the U.K. treasury bought them at.
People familiar with the matter said that while the U.K. government is talking to several potential investors, there was no fixed timetable for the sale.
At midday, RBS shares were at 21.8 pence, giving it a market value of about GBP13.1 billion.
- By Max Colchester, Dow Jones Newswires; +44 (0) 207 842 9295, firstname.lastname@example.org