View from the City - It’s a bad time to sell off RBS stake

WHILE you are ruminating over the content of today’s City A.M., earnings results from RBS on Thursday and Lloyds Banking Group on Friday will be approaching the top of the financial agenda.

Although the “Black Horse”, was first to admit to wholesale miss-selling of payment protection insurance (PPI), it seems that it will be easier for Lloyds to return the taxpayer’s £17bn capital injection (in return for a 40 per cent stake) than for RBS to do the same with its £20bn injection for a 82 per cent stake.

Why? Lloyds Banking Group, including HBOS, had no real participation in investment banking. Its liabilities were mostly toxic mortgages and loans. Despite encountering difficulties in selling 632 branches to the Co-operative Bank at an allegedly knock-down price, it is fair that Lloyds is probably nearer to reaching its goal than Stephen Hester is to turning around RBS. Yesterday, Lloyds Banking Group shares closed at 54.86p. The break-even price for the taxpayer is 71p. So there could be some light at the end of the tunnel for Lloyds chief executive Antonio Horta-Osorio and his team.

We have already been privy to a flavour of the difficulties RBS has encountered in recent months, even before chairman Sir Philip Hampton and Hester post numbers on Thursday. Libor manipulation, PPI miss-selling, swaps miss-selling and fines implemented by US regulators and the FSA have been well-publicised. On the back of this, RBS may post a loss of £3.3bn, despite the fact that it could have an operating profit of £3.5bn.

And though Lloyds may have chosen to adopt a draconian approach to bonuses, this will not be RBS’s chosen route, though individual transgressors will suffer. RBS has accepted former international banking head John Hourican’s resignation without paying full compensation, but has allowed Peter Nielsen to remain in situ. As the old adage goes, banking is an international business and, if RBS is to remain competitive, it must employ top class exponents of the profession.

Vince Cable, the business secretary, has made an inane suggestion about giving shares in RBS to the public at preferential rates. There are also rumours of a proposed floatation of 10 per cent of this bank – £5bn worth of shares in the fourth quarter of 2014, as well as disposing of 25 per cent of RBS’s US operation Citizens Bank, the jewel in its crown. It would be madness to sell any part of RBS until stability has returned, however. The City would be sending out the worst possible message.