RBS to be Sold at a £13bn loss

Generali

http://www.theguardian.com/business/2015/jun/10/george-osborne-signals-rbs-sell-off-at-mansion-house-speech

George Osborne on Wednesday night signalled his readiness to start selling off the Royal Bank of Scotland, seven years after it was rescued from collapse by the taxpayer.
The chancellor said the time was right for British business and taxpayers to start selling off part of the 79% stake in the Edinburgh-based bank, even though the shares are worth £13bn less than the state paid for them during the financial crisis. The shares will be sold to major City institutions in the coming months. An offer for members of the public, as has been promised for Lloyds Banking Group, could follow.

I'm sure that a poster on here, in the face of much criticism, predicted that any sale would be at a colossal loss. If anyone could help me remember who that was I'd like to go back and congratulate them on their perspicacity.

Mr Osbourne quotes a 'profit' on bank bailouts overall of £14bn. Hmm. To get to that figure he completely ignores the cost of the £107bn injected into the banks to make them solvent again.

To get an idea of how much that would have cost Goldman Sachs, a solvent bank, had to pay 10% pa to Warren Buffet for his injection of capital into the bank. That 10% even at a simple rate of interest, i.e. assuming that the banks could have afforded to pay off the interest each year, would have cost the Government a further £80bn less a little change.

However, as the banks were making a loss which is why they needed to be taken over in the first place it's safe to assume that money would have been compounded so the cost of capital would have been well over £200bn!

Even if we're super charitable and say that the banks could have borrowed at the average long-term Government rate over the last 7 years, say 4%, compound interest would have been over £140bn or £30bn at a simple interest calculation.

So it's fair to say that the ultimate gross cost of the bailout is likely to be a quarter of a trillion pounds. That's a lot of people dying of cancer because the money was spent on making sure the rich got their savings back.

I hope you feel that bailing out all those rich savers was worth it.

HAMISH_MCTAVISH

From the article...

the chancellor said the government would still make a £14.3bn profit on the rescue programme for banks. This figure is reached by adding in the proceeds of share sales from Lloyds, along with cash generated from Northern Rock and the mortgage arm of Bradford & Bingley, which were also rescued during the financial crisis.

After all is said and done it looks like the taxpayer will make a £14bn profit from the actions taken to ensure financial stability and prevent losses to depositors.

That the taxpayer could have made a bigger profit had they invested under different terms, or that a private individual would have made a bigger profit had they bailed them out instead, is neither here nor there.

Ronaldo_Mconaldo

Wow, a £14 billion profit. Nice one, George. Add in the money from the sale of Lloyds and The Post Office and that's quite a decent amount of money back to fight the debt.

michaels

Labour who agreed the original purchase price are criticising selling 'at a loss'. By that logic the govt should buy up all the bank shares on the market in the expectation of making a profit in the future....

kabayiri

Which bank can make both a £13bn loss AND a £14bn profit?

Why....RBS - the Royal Bank of Schrodinger of course!

Generali

HAMISH_MCTAVISH wrote: »

From the article...



After all is said and done it looks like the taxpayer will make a £14bn profit from the actions taken to ensure financial stability and prevent losses to depositors.

That the taxpayer could have made a bigger profit had they invested under different terms, or that a private individual would have made a bigger profit had they bailed them out instead, is neither here nor there.

Yes, a £14bn profit if you ignore the cost of borrowing the £107bn and with no risk adjustment.

Even if you just use the Government cost of borrowing over the 7 years at about 4% compound it but then recognise that due to QE a third of that interest is going to the BoE and thus on to the Government you get an interest charge of £90bn so a loss after carrying costs of about £75bn or 'how bloody much?' as we economists call it.

kabayiri wrote: »

Which bank can make both a £13bn loss AND a £14bn profit?

Why....RBS - the Royal Bank of Schrodinger of course!

If I was HMQ then I'd be demanding the 'Royal' part of the name be stripped out.

That would just leave BS which is kinda ironic.

michaels

Generali wrote: »

Yes, a £14bn profit if you ignore the cost of borrowing the £107bn and with no risk adjustment.

Even if you just use the Government cost of borrowing over the 7 years at about 4% compound it but then recognise that due to QE a third of that interest is going to the BoE and thus on to the Government you get an interest charge of £90bn so a loss after carrying costs of about £75bn or 'how bloody much?' as we economists call it.

I have no figures but the impression is that the US govt made profit on most of its bailouts. Does this suggest that the us banks were just illiquid whereas the uk ones, especially RBS, were majorly bankrupt and even without the crash would have been unlikely to trade their way out of debt?

kabayiri

The answer seems clear. The government overpaid for their share of the banks.

To use an American term, it was practically a firesale.

Gordon Brown and his mates don't really know how to get a good price do they, be it for Gold or for bank vaults to store Gold in.

Generali

michaels wrote: »

I have no figures but the impression is that the US govt made profit on most of its bailouts. Does this suggest that the us banks were just illiquid whereas the uk ones, especially RBS, were majorly bankrupt and even without the crash would have been unlikely to trade their way out of debt?

I've not looked at the figures for the US banks and TBH the biggest part of the calculation that is overlooked is the subsequent cost of financing the bailout.

One thing that is probably overlooked in the US bailout is that it cost them their AAA rating. That's probably put something like 2-5bps (0.02-0.05%) on borrowing costs for most non-Government borrowing. The cost of that is what we economists describe as 'effing huge'.

kabayiri

We often forget the societal costs as well.

Whenever the benefit classes are challenged on tv about their apparently soft life style ; sky tv and fags and booze ; the retort coming back is "well the bankers can do what they want. So can we!"

Generali

kabayiri wrote: »

The answer seems clear. The government overpaid for their share of the banks.

To use an American term, it was practically a firesale.

Gordon Brown and his mates don't really know how to get a good price do they, be it for Gold or for bank vaults to store Gold in.

It wasn't really a purchase though, it was a way of giving money to banks.

The Government couldn't just hand over cash AIUI because of EU rules on bailouts of companies. They could buy overpriced equity though.

It reminds me of a cartoon in the Torygraph where the boss says to a trader, "Unfortunately we can't give you a bonus this year. However I would like to buy your tie for four million pounds".

IIRC, lots of the bank bailouts involved them issuing fresh equity at prices that only the Government would pay.