Banks blame strike risk for low Royal Mail price

 
Tim Wallace
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INVESTMENT bankers yesterday defended the privatisation of Royal Mail shares, arguing risks like strikes at the firm could have ruined the sale if they had aimed for a higher float price.

But MPs attacked the bankers, arguing they failed to get good value for money for the taxpayer from the sale of 70 per cent of the business. The 70 per cent stake in the firm was sold at a share price of 330p, and climbed 38 per cent on the first day of trading.

Executives from banks including UBS and Goldman Sachs told MPs they could not price such a large volume of shares too highly for fear the sale would fall through.

They blamed the budget crisis in the US and the threatened Royal Mail strike action for worrying markets and keeping the share price down.

“This was the largest initial public offering in the UK since 2006, a large, complicated deal against an uncertain backdrop in the markets with the debt ceiling, and from the company level with ongoing strike threat,” said Goldman’s Richard Cormack, who also defended the way banks are paid for the deals. “We are incentivised to do as large and as highly priced a transaction as we can.”

And James Robertson from UBS said the rise in share price after the float should not be seen as a disaster.

“What issuers want to see post flotation is that stock is supported by some rise, that it is a success,” he told the Business Select Committee.

“This is important as the government has a residual shareholding and wants to maximise value. The perception of the float as a success is helpful in maximising the full value of their stake.”

But MPs said the bankers should have gained a better price for the government.

“The advice you gave turned out not to be helpful. Somebody somewhere has misled the taxpayer and cost the taxpayer,” said Conservative MP Brian Binley. “For all the money you were paid you weren’t very clever at your job.”

MPS VERSUS INVESTMENT BANKERS

Somebody somewhere has misled the taxpayer and cost the taxpayer.
BRIAN BINLEY, MP

Are you completely useless?
NADHIM ZAHAWI, MP

Our job was to find a market clearing price for the transaction, and that is what we did.
RICHARD CORMACK, GOLDMAN SACHS

What issuers want to see post flotation is that stock is supported by some rise, that it is a success.
JAMES ROBERTSON, UBS