If your headache the following morning isn’t bad enough, consider this – a decade earlier, on 1 January 2007, a share in the Royal Bank of Scotland was worth £55.80. Today, its value has collapsed to £2.26.
The vast majority of the drop occurred during the credit crunch and financial crisis of 2007 and 2008, but even in the last two years, the troubled bank has seen its market capitalisation cut by more than 40 per cent. There is a temptation to point the finger of blame at management, as well as the government officials tasked with ensuring taxpayer-value from the bailed-out RBS.
However, much of the misery reflected in the firm’s share price stems directly from legacy problems: the dispute over 2008’s emergency rights issue (some shareholders are demanding £1bn in compensation, as revealed in yesterday’s City A.M.); the botched sale of Williams & Glyn, a condition of the 2008 bailout; an impending US mega-fine for mis-selling mortgage-backed securities, as American authorities lash out over the one of the causes of the 2008 global crisis; and even the scandal surrounding RBS’s Global Restructuring Group, and how it behaved back in 2008.
Spot the trend. The extent of these woes has unravelled in recent years and made a mockery of any suggestion that the government could make a profit or even break even on its original investment. The UK poured money into a wreck of a company because of a system plagued by moral hazard that created “too big to fail” and inadvertently laid the path towards politically-toxic state bailouts.
Politicians, mandarins and regulators can prevent a repeat of this travesty by implementing a method that allows large financial institutions to be saved or wound-down without a threat to the wider system, or the need to tap-up taxpayers.
They cannot, however, reverse the errors of the past by clinging on to control of bailed-out businesses in the vain hope that brighter times lie ahead. As many City folk understand – if you hang on for the “right” time to sell, it may never come.