Commission waters down RBS break-up call

 
rbs

And another thing about Royal Bank of Scotland.

I have learned that the Parliamentary Commission on Banking Standards has watered down a proposal for the residual £40bn-ish of bad assets of RBS to be hived off and kept in the public sector, as a precursor to the rest of the bank being privatised.

You may recall that last week I reported that the draft report, written by the commission's chairman Andrew Tyrie, had called for such a break up.

But a number of commission members, while not opposed ideologically to such a break-up of RBS, argued that the commission had not carried out the kind of forensic analysis necessary to underpin such a firm recommendation.

They heard a passionate argument from the soon-to-retire governor of the Bank of England that cleaning up RBS in this way would give it back its mojo (so to speak).

But that was about it.

Start Quote

The prospect of the Treasury making a fat profit on the RBS privatisation is probably slim to none”

End Quote

So the finalised report, which was agreed by all 10 commission members yesterday afternoon, after three days of private debate, will say there is a good case for dismantling RBS but will fall short of stating that it must be done.

Instead it will urge the Treasury to carry out the kind of forensic analysis of such an RBS reconstruction which the commission did not have the time to do - and report back in a few months.

Which will come as something of a relief to the chancellor, who is not implacably opposed to retaining the bad bits of RBS, but has also been told by the departing chief executive of RBS, Stephen Hester, that the bank is well on the way to being sanitised by its own efforts.

Also, the technical challenges of hiving off £40bn of toxic loans and investments - such as fixing a price for them which is neither seen by the European Commission as too high (and in effect state aid to RBS), nor so low that it smashes a hole in RBS's capital resources - won't be easy.

Anyway, the point is that the question of whether the eventually privatised RBS will be super clean or not will remain an open one for some weeks or months yet.

By the way, what I thought was most striking in my interview with Stephen Hester last night is that he volunteered his confidence that taxpayers would be able to get back all the £45bn of equity they invested in RBS to keep it alive five years ago.

My interview with outgoing RBS chief executive Stephen Hester

As I said on the 10 O'Clock news last night, his choice of £45bn as the sum needed to be repaid, has great political significance.

It is the pure cash sum which was invested in RBS by the last Labour government - and at this moment the shares that were bought with the £45bn are worth many billions of pounds less than that (normally I would tell you how many billions less, but I am a long way from a screen, so please forgive my crude approximation).

Here is the thing. My understanding is that UK Financial Investments, which manages taxpayers' stakes in the banks for the Treasury, agrees with Mr Hester that the £45bn can be repaid, if the privatisation is carried out in phases over many years.

However, there are others around Mr Osborne urging him to go for a faster privatisation, at the risk of getting back much less than the £45bn - and have told him he can blame his Labour predecessor as chancellor, Alistair Darling, for overpaying for that 81% RBS stake.

Whether or not Mr Darling overpaid is a tricky one. Certainly RBS shares tanked after the state rescue. And the prospect of the Treasury making a fat profit on the privatisation is probably slim to none.

But if, as Mr Hester says, there is a prospect of retrieving the £45bn from a phased privatisation over several years, then many would say better to be slow and patient with the sale rather than hurried and loss-generating.

Although Mr Hester and Mr Osborne would agree on not waiting forever to begin that journey to loosening state control.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +4

    Comment number 45.

    41.Up2snuff

    At the time i couldnt agree more, they were left in an impossible position, however....

    Nothing has been put in place to prevent it happening again that is my gripe, absolutely nothing has changed.

    they soon moved when it came to prosecuting the rioters,

  • rate this
    +13

    Comment number 44.

    Of course those guys think it's a great idea, they aren't the ones who will have to pay for it - that'll be us taxpayers yet again. Leaving risk to the public sector but siphoning all profit to private seems to be the status quo these days it is ridiculous and unfair. How long are people going to put up with this?

  • rate this
    +5

    Comment number 43.

    38 writtenonthatwall
    It's more direct than that. These other banks might not have taken direct equity cash but they all took advantage of emergency liquidity and relaxation of repo collateral rules with every central bank they could. That's direct support, whichever way you look at it, not to mention the indirect support you've already cited, allowing them to survive by propping up their debtors.

  • rate this
    +1

    Comment number 42.

    36.JustKBO

    surely the value of what we could have bought with the outlay in 2008 and the value of what we can buy with what we perhaps will get back has to be taken into account ?

    perhaps i just have my thickest head on today, but its not sinking in.

  • rate this
    +2

    Comment number 41.

    @33 wotw
    A lot of folk do not realise the consequences had RBS failed. There was likelihood that cash machine network would not have functioned for several days. Credit card companies could well have failed & other banking functions been severely affected.

    Then consider effect of that on transport, hospitals & schools & you realise why a rescue was necessary to keep what we had functioning.

  • rate this
    0

    Comment number 40.

    @32 Not really, no. VAT increases are funding reductions in Corporation Tax and raising the personal allowance to reduce income tax. Tax revenues today are not much different from 2007. The bail-out billions came from additional borrowing. Until we know the net loss (or gain) over the period of the loan, we cannot compute the eventual cost (or benefit) to future taxpayers.

  • rate this
    +1

    Comment number 39.

    A quick look at this dog a Government's record of supporting the rich/bug business at the expense of us, the tax payer, shows which way this one will most likely fall.....


    .....and it is not in favour of the tax payer getting the best deal is it.....


    ...unless a Leopard can change it spots? We have only had a trickle of u-turns recently I suppose......

  • rate this
    +4

    Comment number 38.

    36.JustKBO

    "that have never needed support (HSBC, Standard Chartered, etc) as well as those that have."

    So 4 years into the crisis and the public still don't understand it's true scope. THEY ALL NEEDED SUPPORT - because unbeknown to you - one fails, they all start to fail as the entire system is integrated to 'reduce portfolio risk' - but the silly bankers actually increase industry risk

  • rate this
    0

    Comment number 37.

    390. At 21:27 9th Jan 2011, blacksheep44 wrote:
    365. At 18:30pm on 9th Jan 2011, NorthSeaHalibut wrote:
    "Will the public be happy to sit back and take it up the butt..
    This is going to get ugly."
    =====
    Or alternatively, in 6 months, 12 months and 2 year's time, you'll be saying the same thing. And the world will keep turning.

    Nice to know some things don't change!

  • rate this
    0

    Comment number 36.

    I'll be honest Aqualung I don't know how much the levy has actually raised - the target was £2.6 billion a year from its introduction. And this of course is applied to banks that have never needed support (HSBC, Standard Chartered, etc) as well as those that have.

    I still think we bought shares in sterling, we will sell them in sterling, so currency fluctuations are irrelevant.

  • rate this
    0

    Comment number 35.

    The price tanked not because of perceived long-term value but because of the prospect of full nationalisation and equity wipeout. If UKFI can wait a few years, there will be profit. This won't happen because of political pressure to get something back sooner. But - as I wrote here http://joelghames.wordpress.com/2013/05/03/home-by-christmas/ making any predictions on this is a bold move indeed.

  • rate this
    0

    Comment number 34.

    29.JustKBO

    i agree yes that would be reasonable how much is it ?

    400ch precludes including all the schemes that have been used and their "costs" and to whom.

    Do share prices not reflect the buying power of the pound ?

  • rate this
    0

    Comment number 33.

    29.JustKBO

    Oh you're funny - Crossrailis costing 15 Bn - we could have had a crossrail in Birmingham, Manchester and Leeds - and all the economic benefits that would bring - rather than pouring it into RBS.

    It's called opportunity cost - and you'll find it's why you will never be as rich as a banker - because you don't know how to calculate a profit or a loss based on the risk taken

  • rate this
    +2

    Comment number 32.

    27
    You are paying for it every day through your taxes (vat @ 20% for example), through your deflated pension and the conseqences of austerity which will hit you regardless of whether you're in receipt of benefits or not

    So now we're into the final stages - when faced with their own gullibility people would rather pretend that they are somehow unaffected by 'socialised losses'

    Laughable

  • rate this
    -1

    Comment number 31.

    30 inflation is low by historical standards so not really a big difference to the amount. I don't share other posters' certainty that we won't get our money back. Until it happens (or doesn't) nobody can know - they can just guess.

    But I share your view - priority should be to switch the govt's asset from shares in RBS back to something that can be used to invest in society.

  • rate this
    +7

    Comment number 30.

    WE ALL NEED TO READ THIS AND THINK --- 26.AqualungCumbria

    What was the real 'inflation adjusted' cost of rescuing RBS?

    How much are we really owed?

    I must admit I had never considered how much we have really lost.

    I don't care who is to blame, I just want my (taxpayer) money back.

  • rate this
    +2

    Comment number 29.

    Why adjust for currency changes Aqualung? Did we use dollars to buy the RBS shares? And why add the toxic assets if they're not going to be taken into some state 'bad bank'? Or did you just fancy the idea of getting the number as big as you could?

    What about offsetting the banking levies RBS have paid since 2008 and the fees paid to the Govt for indemnities?

    Need balanced rational analysis.

  • rate this
    +1

    Comment number 28.

    "and have told him he can blame his Labour predecessor as chancellor"

    yeha - didn't see that one coming did we? I said 4 years ago they will quietly sell off the bank for around the cash investment made and all forms of financial calculation will be 'forgotten' to fool the gullible publoic into thinking they did well out of the deal.

    Only 4 years behind BBC - not bad!

  • rate this
    +1

    Comment number 27.

    @22 I never paid a penny to RBS or Lloyds. Did you? Never having paid, I would never expect to get something for nothing "back". Would you? No, it is as you say.

    But by a series of dividends or by a discounted value of such a series, the national debt will grow a little less quickly ...some time.

  • rate this
    +1

    Comment number 26.

    So going by your figures Robert we need 45Bn for the shares adjusted for the devaluation of our currency so 60Bn at todays value of the pound. add to this the 40Bn of toxic assets and we are up to 100Bn for starters .

    When do you think the privatisation is going to reflect that ?

 

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