UK taxpayer set for £10.4bn loss on NatWest as full exit nears
It has been a 17-year slog but the UK taxpayer next month is set to finally cease to be a shareholder of NatWest Group. It is seen as a landmark event for the bank and government after an often rocky ride since the rescue of the then Royal Bank of Scotland and a tortuously slow exit.
Longevity is not positively correlated to returns, with the UK taxpayer set to make a loss of about £10.4bn on the process, according to IFR calculations, in stark contrast to some government bailouts.
For the past four years, the government has been selling shares through a trading plan, known as a "dribble out", through which shares are sold regularly in the market. The plan is being run by Morgan Stanley. The state's stake fell below 3% on April 14, and at the current pace the exit should occur around May 26.
The dribble out has achieved a rapid acceleration of sales since the start of 2024 when the UK's stake was 37%. The sales have been helped by a more than doubling in NatWest's share price in that time.
"There is no doubt that this moment matters," NatWest CEO Paul Thwaite told shareholders on Wednesday at the bank’s AGM in Edinburgh, referring to full privatisation.
"Although there is no strategic or operational impact of the government exit, the accelerated selldown over the last 18 months is testament to the performance of the business and has helped us to attract new global investors who share our growth ambitions," Thwaite said.
Royal Bank of Scotland was renamed NatWest in 2020, and Thwaite said more than one-third of the bank's current staff were working at RBS in 2008 when it needed rescuing.
The UK spent £45.5bn to bail out RBS in 2008 and 2009, in what was the biggest bank rescue of the financial crisis. It left the state with an 83% stake and shares were bought at an average 502p apiece.
It was a dramatic fall from grace for RBS. The Edinburgh-based bank had become one of the biggest in the world under former CEO Fred Goodwin through takeovers including NatWest in the UK and Citizens and Charter One in the US and a massive expansion of its investment bank and balance sheet. But it came undone with the purchase (in a consortium with Santander and Fortis) of Dutch bank ABN AMRO in 2007 for €71bn – still the biggest bank takeover.
For years after the bailout RBS struggled to restructure and cope with much tougher regulations and its share price remained depressed. The UK government only started reducing its holding in the bank in August 2015 with the sale of a 5.4% stake at 330p per share.
That first sale was criticised for coming at the lowest price in 12 months as the decision was taken to launch the sale in the summer holiday period. Incredibly, banks were sounding out investors on the sale in the preceding days but as there was no formal mandate in place the investors were not restricted from trading the stock – which tanked.
Execution was less than ideal on other sales too, with the third and final ABB in May 2021 also leaking over an hour before the market closed, precipitating a collapse in shares towards the end of the session.
There have been three ABBs that have sold a combined 2.14bn shares and five direct purchases of stock by the bank totalling 2.27bn shares. The trading plan has proved the preferred exit path and sold about 4.7bn shares, or about 51% of the original holding.
The dribble out was first used by the UK to sell shares from the bailout of Lloyds Banking Group and has since been adopted by many European governments as an efficient way to dispose of shares without having to worry about timing while ensuring a fair price.
£152 each
There are many parts to assessing the state’s loss on NatWest. In October, the UK government said proceeds from sales had totalled £19.1bn and the stake was down to 17%.
NatWest bought back another £1bn of shares in November and proceeds for the remaining shares from the trading plan are estimated to be about £4.3bn based on average prices. That would mean total proceeds from share sales at £24.4bn.
There have also been sizeable dividends and payments, however. HM Treasury refused to estimate how much that amounts to.
Payments to HMT from ordinary dividends since they restarted in 2018 have totalled about £5.1bn, IFR has calculated.
The bank also paid £1.5bn to HMT for a dividend access share in 2014 and 2016; an asset protection scheme fee of £2.5bn; contingent capital facility fees of £1.3bn; and other fees of £305m, according to a report in 2018 by UK Financial Investments, the body that was responsible for the holding before it was replaced by UK Government Investments.
The dividends and fees of £10.7bn lift total proceeds to £35.1bn, or £10.4bn less than the government paid.
That equates to £152 for every person in the UK. Add in UK inflation averaging 2.9% per year during that time and the loss is far higher.
"The government recapitalised RBS to protect financial stability in the UK, with the independent OBR [Office of Budget Responsibility] stating that not intervening would likely have had much greater social and economic costs," a spokesman for HMT said.
HMT declined to estimate total receipts until the sale process is completed.
Recent sales under the dribble out have been helped by a surge in NatWest's share price. The shares closed on Wednesday at 476.5p, more than double since the start of 2024. For most of the period of early share sales, however, the price was below 300p.
Goldman Sachs has been privatisation adviser to the UK government throughout, and Rothschild was an independent financial adviser in the early stages. NatWest declined to comment on how much banks have been paid, but it is a pittance. Banks weren't even able to charge the usual buyside commissions to investors on the ABBs, for which the government paid them a token £1 each.
