UK Britain is sitting on the biggest losses of any country from its direct shareholdings in banks, almost a year after the collapse of Lehman Brothers.
But the recent rally in share prices is prompting debate at Westminster on whether today’s paper losses of about £3.3bn could turn into something of a cash bonanza for the next government.
With government debt projected to rise towards 90 per cent of gross domestic product in 2014, any receipts from a profitable sale of Royal Bank of Scotland and Lloyds bank shares will be gratefully seized on.
UK Financial Investments, the arm’s length body set up to manage the 70 per cent stake in RBS and the 43.5 per cent stake in Lloyds, is already examining exit strategies and could start selling down the holdings in the next year.
Insiders have suggested that these options could include a retail offering to consumers similar to the big privatisations of the 1980s under Margaret Thatcher, who oversaw a trebling to 11m in the number of shareholders in the UK.
However, there are some drawbacks with this option. The UK market for this type of offering has not been fully tested since the BT sales of the early 1990s and those targeted at retail as well as institutions require the creation of a full prospectus, which is costly and requires one or two months’ preparation time.
The last such transactions in Europe were for Deutsche Telekom in 2000 and Enel Spa in 2004.
UKFI could also sell its stakes to institutions, which is the standard way for the government to dispose of its shares in public companies. The government sold its shares in British Energy in 2007 and Qinetiq in 2008 in this manner.
The organisation has begun taking soundings with sovereign wealth funds and other investors on selling stakes in its part-nationalised banks, in what is likely to be a staged sale over a number of years.
UKFI is likely to divest its stakes in tranches over a period of time, although “these might be quite large dribs and drabs”, according to people close to the matter.
A long list of mainstream UK institutional investors have sold out of RBS and Lloyds and there are hopes they can be lured back on to the shareholder register.
Another option for disposals is through structured transactions, including exchangeable debt issues, which have been employed by European governments in recent years.
However, suggestions that the government could relinquish the stakes entirely within a year are seen as unrealistic, given their size, and one person familiar with the situation has indicated it could take five or six years.
UKFI said in its annual report in July that “whilst there have been some encouraging signs recently, it is in our view too early to make a judgment that the conditions are right for a share sale”.
It also said that there are practical limits on the size of individual capital markets transactions and it may need to undertake several transactions in each bank’s shares over a period of years to complete the exit.
Mrs Thatcher’s governments of the 1980s saw privatisation as a means not just of making money but also of spreading share ownership to the masses.
British Telecom paved the way, followed by the “Tell Sid” British Gas sale, which persuaded many people that the government was giving away “free” money. Later sales involved companies including British Airways, Rolls-Royce and BAA.
George Osborne, shadow chancellor, would no doubt love to follow in those footsteps, although his aides insist that any sale of bank shares to members of the public would have to be weighed against the cost and complexity of taking such a route.
