LONDON—The U.K. government will start selling shares in Royal
Bank of Scotland Group PLC within months in a long-anticipated but
highly-symbolic move to show the country has moved on from the
financial crisis.
Chancellor George Osborne in his annual Mansion House speech on
Wednesday said that starting to sell RBS shares, even at a loss,
"is the right thing to do" for taxpayers and the economy and that
the Bank of England and independent adviser Rothschild have blessed
the plan.
The British government stake is worth 32.1 billion pounds ($49.2
billion).
"From bailing out the banks to bringing them back from the
brink, now is the time for RBS to rebuild itself as a commercial
bank no longer reliant on the state, but serving the working people
of Britain," Mr. Osborne said in prepared statements for the
speech.
The government spent £ 45.5 billion to bail out RBS in the
financial crisis, after a disastrous acquisition of Dutch banking
group ABN Amro nearly caused the bank to collapse. The emergency
funds have sat at the bank for nearly seven years, as a prolonged
recession, an onslaught of regulatory fines and political squabbles
over the bank's strategy held back its recovery.
Mr. Osborne said he had sought guidance on the RBS share sale
plan from Bank of England Governor Mark Carney, who in a letter on
Wednesday agreed the plan should go ahead now to "promote financial
stability, a more competitive banking sector and the interests of
the wider economy."
There had been anticipation in recent months that the government
was preparing to start selling the shares. In March, Mr. Osborne
said he wanted to get moving on the privatization in the summer,
following the country's general election last month that returned
the Conservative Party to power.
Selling the shares will underline the government's view that an
economic recovery has taken hold in Britain and that its banking
system has been significantly strengthened. The U.K. was hit harder
than most countries in the crisis of 2008 and 2009 because of the
bank bailouts and its reliance on financial services for economic
growth.
The first shares sold by the government in RBS will almost
certainly be at a loss. The stock closed on Wednesday at £ 3.55,
well below the average price of £ 5 a share paid in the bailout by
the former Labour government. But Mr. Osborne said it is right to
start now and increase the bank's free float, paving the way for
larger sales later. He said selling the entire stake could take
years, while signalling a retail offer to the general public is
likely to be part of the plan.
In his prepared speech on Wednesday, Mr. Osborne said the longer
the government waited to sell the shares, "the higher price the
whole economy will pay." He said the government will make sure that
taxpayers get back "billions more than they were forced to put in"
to the country's banks.
The pledge was supported by a review by Rothschild that said the
government should expect to make around a £ 14 billion profit on
its bank bailouts. The government has already made money from
selling much of its stake in Lloyds Banking Group PLC, the other
major bank it bailed out in the crisis.
Returning RBS to shareholders has taken far longer than the
government or analysts had foreseen. The chief executive installed
in 2008 to carry out a drastic restructuring, Stephen Hester, was
forced out in 2013 after clashes with government officials over the
bank's strategy.
Mr. Hester's successor, Ross McEwan, has taken a sharper ax to
RBS's investment bank and overseas units and carried out the
government's wish to reshape the bank to focus on British
households and companies.
After the worst of the financial crisis had passed, Britain
underwent a round of soul-searching about the purpose of banks and
the activities they should carry out. Several reviews by government
officials and outside groups led to major banking reforms in 2012,
and banks soon will be forced to start separating their retail and
investment banks.
There were also repercussions from the RBS bailout for the
country's financial regulator, which had allowed RBS to buy ABN
Amro despite a perilously thin capital cushion. It was disbanded in
2013 to create two new agencies and its bank supervision powers
were passed to the Bank of England.
The former RBS CEO who had overseen the ABN Amro purchase, Fred
Goodwin, was stripped of his knighthood three years ago.
The chancellor's plan to sell RBS was unveiled alongside results
of a yearlong review into financial-market rules and practices led
by the Bank of England.
The review recommended lengthier jail terms for traders found
guilty of market manipulation and called for senior executives at
financial firms to face fines and other civil penalties if their
staff break the rules.
Jason Douglas contributed to this article.
Write to Margot Patrick at margot.patrick@wsj.com
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