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Royal Bank of Scotland

Volume 791: debated on Tuesday 5 June 2018

Private Notice Question

Asked by

To ask Her Majesty’s Government why HM Treasury have sold a further tranche of shares in Royal Bank of Scotland, resulting in a loss of over £2 billion to the Exchequer.

My Lords, last night the Government conducted a sale of shares in RBS, restarting the phased return of the bank to full private ownership. The Government sold 925 million shares overnight, raising £2.5 billion for the taxpayer. The transaction represents value for money for the taxpayer. RBS is a smaller, simpler and safer organisation than the one that the Government were forced to recapitalise in 2008, and the sale price reflects that reality.

My Lords, why sell now, crystallising a loss that rises to in excess of £3 billion, when financing costs are included, when there is no pressure and when the Government claim to be positive about both RBS and the community? Are the Government concerned that, by acting now, they could be selling shares on an inaccurate prospectus, ignoring growing allegations about liabilities to those abused by RBS’s global restructuring group? We are beginning to hear, both in the UK and now in the US, Australia and across the EU, that those liabilities are inadequately quantified, not declared and not provided for in the accounts.

I thank the noble Baroness for her questions. In response to the first one, it must be remembered that when the Government paid £5.02 per share for RBS in 2008 it was an essential injection of capital at a time of financial crisis. The bank whose shares we sold yesterday is a very different organisation. Its balance sheet is £1.5 trillion less. It is operating in nine countries instead of 38. Because we have changed the rules, its capital buffer is now 15.1%, which is greater than it was and well above the threshold required. The noble Baroness also touches on some other important factors. These had a bearing on UK Government Investments, which advised the Government about when to sell—we act on advice in these things. It pointed to the fact that, because a settlement of £3.6 billion with the Department of Justice in the United States, announced in early May, had now happened, it judged this to be a good time to exercise this sale. The Financial Conduct Authority rightly looked into the global restructuring group, where the circumstances are very concerning for the businesses affected. Its report recognised that a number of that group’s customers had been mistreated.

My Lords, the Minister has made a good fist of a very poor case indeed. He must recognise that the bank is, in fact, being sold at a level massively below its value when it was bailed out in 2008. It is, therefore, the taxpayer who is bearing the cost of this situation. It will not do for the Government to say: “We now have a bank which can pay a dividend and which has made progress. We are therefore delighted to be able to sell it into private ownership, while the public which bailed it out loses significantly on the deal”.

The noble Lord may say that we sold it too cheaply; I might say that he bought it too high, which is another way of looking at the £5.02. It is a fundamentally different bank to the one which was acquired then. The price which we sold at yesterday—271p—was near the top end of the present yearly average. We have signalled that we do not believe that a Government should be in the business of running these banks. The Chancellor announced in last year’s Autumn Budget that we would gradually dispose of our interest in the bank over the next five years, and that is what we are doing.

Does my noble friend agree that the situation as advanced by the Opposition Front Bench and Liberal Benches is a complete distortion? The loss occurred when the decision was made to buy all the shares to support the interests of all the depositors in the bank at that time. The implication of the Question is that, if we hang on to the shares, we can be guaranteed a higher price later on. This procedure is entirely sensible. We bring in some money while we can: as we know, there are a lot more shares to go. We can continue to consider at what stage we get rid of the shares and sell them at the best price we can. That was when the loss was made, not now.

My noble friend is absolutely right. There is a sense here of forgetting the history of what the situation was in 2008 and the incredible damage that was done to our economy—which we are still having to clear up so many years later. That is the reality of the situation. When the National Audit Office looked into how we would do this, the first sale was done on an accelerated book-build process, and it recognised that it offered value for money in the circumstances. However, the fact is that we are in these circumstances as a result of the realities of what happened in 2008, and we should not forget that.

My Lords, on the “Today” programme this morning the Economic Secretary, John Glen, when seeking to justify not waiting for a better price, on that specific point said that the Government’s judgment was that, looking at the market conditions, there would be no better price in the foreseeable future. What precisely are those market conditions that he referred to, which are not referred to in the Minister’s answer, that the Government estimate will keep this bank’s price depressed?

These are matters which we take independent advice on; that is why UK Government Investments is there. It tracks what is happening in the market on a daily basis. I have already mentioned some of the things which are happening. Earlier this month there was a large settlement with the Department of Justice, of £3.6 billion; UKGI also recognised that in April, the bank turned in its first profit in 10 years. Those factors were weighed together, along with the fact that there are very few windows during the course of the year when we can dispose of assets, because of potential conflicts of interest.

Does my noble friend agree that this sale does not result in a loss but crystallises it? He just referred to advice he has received; would he say what advice he received about the future likely movement in the share price? He also refers to this being value for money for the taxpayer; could he explain in what way?

This is the fourth time we have undertaken this approach. We did it twice with Lloyds, and this is the second time with RBS. The last time this was done in 2015, the National Audit Office concluded that that sale of shares in RBS,

“was executed as skilfully as could reasonably be expected, and on the basis of the preparation, process and proceeds of the transaction, UKFI”—

now UKGI—

“achieved value for money”.

That was what it looked at, and it will have to justify that advice; others will look at this as well, and we will keep it under review.

My Lords, it seems that the Government are implying that the bank is going to do better, and I agree with that. If you look at the FT today, there are a lot of reasons for thinking that. However, if it is, it begins to look increasingly as if the Government are taking a wodge of money now because they have financial difficulties in the current public expenditure round rather than waiting to get the best price for the taxpayer.

We have set on this process of doing precisely this. The proceeds of the sale yesterday will go directly to reduce the debt which was accumulated as a result of the actions in 2008. That is what it will be used for, and quite rightly.

My Lords, does my noble friend recall that, when the noble Lord, Lord Myners, was in charge of this matter and bailed out the Royal Bank of Scotland, I asked him what he expected the loss would be as a result of that involvement? He replied, “We will make a profit on this transaction”. Will my noble friend not take advice from the Opposition, which also sold our gold at a record low price?

We recall the selling of half our gold reserves between 1999 and 2002 at the rock-bottom market price, but it is more important here to say that of course there is a problem. Then, in 2013 a Liberal Democrat Chief Secretary to the Treasury and a Conservative Chancellor produced a report which was put into the public domain saying what the future of RBS was. That involved radical restructuring, which is taking place, and as it is being concluded we are gradually disposing of the assets. That is the correct thing to do and we are right to do it.