Risk of mega-fines holds back RBS privatisation

Tim Wallace
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Leigh-Pemberton is responsible for sale
Bailed-out bank RBS is almost ready to be privatised, but the risk of major fines is stopping a large scale share sale, UK Financial Investments’ (UKFI) bosses told MPs yesterday.

The government still owns 80 per cent of the bank and has yet to begin selling up – in contrast with Lloyds, where it has sold half its holdings.

Bosses at the agency which manages the government’s stake in the banks said they were close to a sale.

“Institutional investors have said that [RBS chief] Ross McEwan has made a lot of progress making a simpler, better bank,” UKFI’s head of capital markets Oliver Holbourn told the Treasury Select Committee of MPs. “More clarity is needed on conduct and litigation costs – the size of the issue is unknowable – before we feel we can deliver a good outcome for the taxpayer.”

UKFI executive chairman James Leigh-Pemberton revealed he has met advisers at JP Morgan five times in the past month to discuss approaches from investors to buy small stakes.

But he believes it may be better to wait for a series of large sales to reduce the shareholding meaningfully, rather than selling a few small stakes.

Leigh-Pemberton also said the Treasury interfered with pay at RBS, rejecting his advice that the bank match its rivals in offering bonuses of up to double em­ployees’ salaries.

“Our starting position acknowledged it was in the shareholder interest on commercial grounds that a two-to-one proposal be put to shareholders,” Leigh-Pemberton said. “RBS made it clear to us that there could arise risks to retention and risks to attraction of new employees from them being an outlier in this regard.”

EU rules limit bonuses at the same level as salaries unless shareholders agree to double that cap.

“It is clear from Mr Leigh-Pemberton’s evidence on RBS’ bonus decision that the government’s intervention in the running of the company is substantial,” said committee chairman Andrew Tyrie, arguing that UKFI should be re-absorbed into the Treasury formally.

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