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RBS sale: one to watch

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09/07/2015
In his budget speech, the Chancellor said the sale of government assets this year would deliver ‘the largest privatisation proceeds of all time, higher than the previous record in 1987’.

He also said that he wanted to make ‘faster progress in returning our banks, including RBS, to where they belong – the private sector.’ But what does this mean for investors?

RBS has been in public hands since the crisis. From highs of over 5,000p before the crisis, the share price slid to lows of around 220p. The shares are now sitting at around 340p, over 8% up on the year, but still relatively out of favour. Nevertheless, the Chancellor announced in his Mansion House speech in June that the Government was planning a sale of its 80% stake. His comments yesterday suggest that the sale might now happen in August or September.

RBS shares have bounced since the budget, but not in excess of the wider market. Darren Hepworth, customer services and global trading director at TD Direct Investing, says the sale will affect sentiment: “Whatever the outcome of its impending sale, RBS will continue to have an impact on market sentiment, with banks representing the largest sector on the FTSE, totalling 14%. So whether or not you already have stock, the RBS sale is one the investment community should watch closely.”

He points out that this isn’t the first time the government has sold an RBS asset, but it’s likely to be the biggest. He adds: “To date, we’ve witnessed the sale of 918 pubs owned by the bank, which were handed to Heineken in 2011, Coutts’ overseas operations, RBS Aviation Capital, Angel Trains and Direct line Group – which are all now under new ownership. We also saw Citizen Financial Group’s successful IPO in the US, raising over $3bn in March.”

He believes that there is plenty for the government to gain from a successful sale: “As of today, RBS market cap today stands at £41.6bn, which would be enough to cover the extra £8bn a year needed by the NHS between now and 2020.”

Nevertheless, it will put a lot of supply on the market, for which there may be relatively limited demand. Banks remain unpopular with investors, in spite of the regulatory changes imposed upon them.

Equally, Shore Capital suggests that the uncertainty around the new tax rules announced in the budget have not been fully reflected in the price of RBS shares and some of the other domestic banks.

 

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