Government considers buying remaining 18% of RBS for £5b

[dutchman]

The government is considering fully nationalising the Royal Bank of Scotland (RBS).



Cabinet ministers are discussing whether to buy out the remaining private investors who still own 18 per cent of the bank. The government is disappointed at what it believes are barriers being put up by the banks to prevent lending.

The proposal comes amid frustrations that banks are still not lending at sufficient levels to businesses and individuals to help aid the economy to emerge from the recession.

Reports suggest that this is an ongoing conversation between ministers as they grapple with plans to boost the economy. One official said: “This is a conversation that takes place all the time.”

RBS is 82 per cent owned by the UK taxpayer. The government spent over £45 billion bailing it out at the height of the financial crisis on behalf of the taxpayer. Subsequently the taxpayer has made a massive paper loss as the share value now is just over 200 pence per share, but only after the bank agreed a share restructuring deal to multiply existing share by ten at its annual investor meeting in June.

This means that under the old rules, RBS shares are now valued at 20p, down from 600 pence at their peak in March 2007. If you had invested £100 then, it would be worth £3.30 now.

RBS’s chairman, Sir Philip Hampton admitted in June that shareholders are unlikely to recover their money “in his lifetime.”

The discussions in government could lead to taxpayers taking full responsibility for the toxic debts that come with the bank. The Chancellor, George Osborne, is believed to be against the idea.

However, the idea is gaining circulation as the government becomes increasingly exasperated at the failure of its attempts to stimulate lending from the banks.

Project Merlin, although recording that banks reached notional targets on lending, did little to improve the lending environment at the coalface, whilst the latest scheme, launched yesterday, the Funding for Lending scheme, is unproven.

Therefore, the government is considering forcing RBS to increase lending. Private investors could take legal action to stop this, so the only way round that possibility is to buy out the remaining investors.

However, RBS officials have questioned the government’s idea by asking how the government could force the bank to lend more to small businesses without increasing risks to the taxpayer.

This would represent a dramatic change of policy but with RBS struggling to repair its balance sheet and further away than ever to making a sale of its share to investors that will get the taxpayer back their stake, radical ideas are being explored.

RBS announces its interim financial results tomorrow. It is expected to make a £1.5 billion loss as it add further provisions for costs associated with payment protection insurance and liabilities as a result of the technical problems experienced by NatWest and Ulster Bank customers last month.