Just a few years afterwards, it seems people have forgotten how momentous the financial crisis was – and in what a terrible state RBS was. And while criticism of the chancellor for pushing ahead with the first sale of the government’s shares in RBS is politically appealing for some and taxpayers will not ‘get back what they put in,’ it is a simplistic accusation.
Complaints about selling off the bank at a lower share price than was paid, indeed, fundamentally miss the point. When the government stepped in to save this profoundly mismanaged bank, it was not an investment decision designed to bring a profit back in the long-term. It was a dramatic rescue package, an emergency recapitalisation, to stop the bank going under and potentially dragging the British economy with it.
The price paid per share – 502p – was far above what those shares were trading at on the open market because the money simply had to go in to prevent financial Armageddon. RBS had a balance sheet five times the size of Lehman Brothers and we all remember the domino effect its collapse would have precipitated. Whatever the politics of the bailout – and you can certainly make an argument that other options should have been considered alongside – we were not dealing with a simple investment decision with plenty of time to mull over the decision.
RBS’s share price has remained relatively flat in recent years, and the Treasury perhaps thought that a sale might boost that in time for further sell-offs. And it’s worth remembering too that RBS’ share price would probably be higher if new capital requirements weren’t in place. Various analysts have suggested that the Bank is extremely over-capitalised and could hand back billions to investors in the coming years: freeing it to do that would no doubt increase the share price to a level perhaps equivalent to what was paid. But the decision has been made to force banks into more conservative positions.
There is, of course, a more fundamental point. Banks shouldn’t be in the public sector. The risks associated with running vast lending empires should not be put on the backs of taxpayers.
The chancellor is right to move ahead with the sell-off and, as soon as practically possible, he should move forward with the next tranche too. The temptation to play speculator may be tempting but – much like the sell-off of Royal Mail shares, which also attracted criticism – that is not the role of the Exchequer.
The precedent too, is worrying. There is a good argument that RBS will soon become a profitable bank. Those who suggest we should hold on to the shares for longer are inherently implying that we could, if the bank started turning profits as it did in the 2000s, actually just keep the bank in the public sector for good and enjoy the fruits of ownership. That is dangerous logic, and we must head it off at the pass.