Government to own largest share of RBS
28 11 200857.9% of the Royal Bank of Scotland will soon be owned by the government, as shareholders have only bought out a tiny amount of the new shares that were offered to them.
The small take-up had been predicted, and is likely due to the fact that the offer price of shares was 65.5p – 10p higher than the price at which shares were trading.
The Royal Bank of Scotland also owns NatWest, and the share issue was part of the government’s plan to recapitalise banks.
The government will now pay around £15 billion for its share in the bank, and will also buy £5 billion of preference shares.
Existing shareholders at the bank bought almost 56 million shares, representative of just 0.24% of the offered new shares. This cost them £36.7 million between them and made an immediate paper loss of £5.6 million.
The fact that the remainder of the shares has been bought by the government, means that taxpayers have made an immediate paper loss of £2.4 billion, based on yesterday’s closing share prices.
Stephen Hester, Chief Executive of the RBS has said: “We regret that existing shareholders did not take up their pre-emptive rights but understand that the market sentiment towards the banking sector made this uneconomic in the short term.
“There remain substantial uncertainties and challenges outside our control but for our part the job is underway.”
At a meeting last week, shareholders of RBS voted to take the government money, even though there will be strings attached, such as the bank losing freedom in areas like executive pay and dividend policy.
It was also agreed that normal lending practices would be resumed. Therefore, the Bank is announcing that it will guarantee overdraft rates and contracts for its business customers for at least a year.
UK Financial Investments Ltd will hold the government’s shares of the Bank. This is in an effort to maximise value for taxpayers and try to prevent politicians from making business decisions about the Bank.
The chair of this company will be Philip Hampton who is also chairman of Sainsbury’s and was also the director of Lloyds TSB.
The Royal Bank of Scotland is, unfortunately, just one of many banks that has been exposed to the debt on the US sub-prime loans and felt the negative effects of this association.
The Bank has also felt the effects of the collapse of the inter-bank lending, as the whole industry worried about which fellow bank they could afford to lend to.
Critics are also saying that the Bank also paid too much for ABN Amro last year, which is another reason for its current problems.
The Bank led a group that paid 71 billion Euros (the equivalent of £61 billion) for the Dutch bank in October last year.
Categories : Credit Crisis, Economy, News, Politics, UK





