Bloomberg News

Osborne Said to Recover RBS Bailout at 19% Below Rescue Cost

March 01, 2013

The U.K. would recover the cost of rescuing Royal Bank of Scotland Group Plc (RBS) at a share price 19 percent below what the government paid to bail out the lender in 2008, said three officials familiar with the matter.

The government would break even on its investment at 407 pence a share compared with the average 502 pence paid during its rescue, said the people, who asked not to be identified because they weren’t authorized to speak publicly. That’s because the price takes into account fees paid by RBS to the Treasury for the bailout and other programs during the crisis, the people said.

Royal Bank of Scotland Chief Executive Officer Stephen Hester yesterday said the lender, which received the biggest banking bailout in the world, may be ready to be returned to private hands before the 2015 vote. A Treasury official said the government hasn’t set out a target price or a timetable for the sale. RBS fe11 3 percent to 314 pence in London trading today.

Chancellor of the Exchequer George Osborne could potentially use the proceeds of a sale to fund tax cuts or more spending before a general election in two years that polls say his Conservative Party may lose. The government is constrained by the biggest austerity program since World War II and earlier today came third in a special election in southern England.

Prime Minister David Cameron has kept open the option of giving away RBS shares to the public. The bank said yesterday its net loss tripled to 5.97 billion pounds ($9 billion) after it set aside an additional 1.1 billion pounds to compensate clients missold insurance and interest-rate hedging products.

Third Place

Cameron’s Conservatives lost a special election in Eastleigh today, showing he is struggling to win over voters in the face of the U.K.’s recession. The Cabinet discussed the lack of growth this week after Moody’s Investors Service stripped the U.K. of its top debt rating on Feb. 22 and the pound today dropped below $1.50 for the first time since July.

Osborne is also seeking to sell the government’s stake in Lloyds Banking Group Plc (LLOY), which it rescued in 2008. For the London-based lender, the equivalent price for the government is 61 pence, it said today. One of the conditions attached to CEO Antonio Horta Osorio’s 1.49 million-pound bonus is that the government sells at least a third of its holding for more than that price.

Lloyds declined 2.2 percent to 53.25 pence today. Lloyds and RBS are the worst-performing U.K. bank stocks this year.

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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