Prime Minister David Cameron urged Royal Bank of Scotland Group Plc Chief Executive Officer Stephen Hester to speed up the lender’s return to health as he left open the possibility of giving the public shares in the bank.
Expressing frustration at the time it was taking to restore Britain’s biggest publicly owned bank to a sustainable financial position, Cameron said the idea of ultimately awarding shares to British voters is “interesting.”
“It’s a huge undertaking,” he told reporters in Mumbai during a three-day visit to India. “It was a very badly damaged institution, but I think they are doing the right thing. Obviously we want them to, where possible, accelerate the adjustments that they are making in terms of making it a strong organization.”
The government, which injected 45.5 billion pounds ($70 billion) into RBS five years ago in the costliest bank bailout in the world, still faces a paper loss on its investment. While Hester has shrunk assets by more than 800 billion pounds and cut 36,000 jobs, he has been hobbled by writedowns, the costs of compensating customers wrongly sold loan insurance and a $612 million fine for rigging the London interbank offered rate.
The shares advanced 1.7 percent to 345.10 pence in London trading today, bringing their gain so far this year to 6.4 percent. The government paid the equivalent of 502 pence a share for about 81 percent of Edinburgh-based RBS, leaving taxpayers with a paper loss of almost 15 billion pounds.
When asked about giving RBS shares away, Cameron said that “these are all interesting questions for the future.”
“The first job is to turn around the performance of RBS and to strengthen its balance sheet, strengthen its business and that’s what Stephen Hester and his team are doing,” Cameron said. “But I am keen to examine all possibilities for what we can do to put RBS in time back into the private sector.”
Hester, who replaced Fred Goodwin in 2008, still has to return the bank to profit, and sell 316 branches by 2014 to comply with European Union state-aid rules after its bailout. RBS is expected to report a 1.2 billion-pound loss in the fourth quarter, according to the average estimate of five analysts surveyed by Bloomberg. The lender had a third-quarter net loss of 1.38 billion pounds.
RBS is weighing an initial public offering of the branches after Banco Santander SA aborted talks to buy them in October. The lender may opt to sell a minority stake in the outlets to investors including JC Flowers & Co. LLC and Apollo Global Management LLC (APO:US) before an IPO, Sky News reported today, without saying where it got the information.
Cameron faces the prospect of heading into the 2015 general election with few sweeteners to offer voters given the self- imposed constraints of his deficit-reduction program. His coalition partners, the Liberal Democrats, first proposed giving away shares in RBS to Britain’s 45 million registered voters. The Treasury, which is in charge of state-controlled banks, has been cooler on the idea.
Business Secretary Vince Cable, a Liberal Democrat, said on Feb. 6 that privatizing RBS “now looks a distant dream” and again urged that the stock be given away to taxpayers.
The public “can benefit from the upside of eventual recovery in share prices, while professional managers run the bank with a long-term mandate which includes a commitment to assist national recovery through expanded small and medium-sized enterprise lending,” Cable said.
Chancellor of the Exchequer George Osborne, a Conservative like Cameron, on Feb. 16 ruled out selling the government stake in RBS at a loss to taxpayers. An aide said there had been no changes to policy and no new plans to give away the shares.
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