RBS to be Sold at a £13bn loss

RJP33

What always confused me is why we paid such a high share price on purchase? The bank was on the brink of collapse and the price dived after purchase, surely we could have negotiated a better deal?

cells

Generali wrote: »

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

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.

I think you are being too negative on the deal
What it would cost the banks to borrow is not really relevant.

The £107B (is that correct?) injected was financed by gov debt but that price would not be 4% but a good deal lower. even 30 year gilts are below 3% yeild.

Using the 2 year rate of ~0.7% might be more fair

In which case £107B injected 7 years ago would be worth ~£112B today minus any dividends and sale proceeds

also looking at it in isolation is also silly. had they let the banks go bust we would almost certainly had a bigger deeper longer recession and we may have even have lost forever a chunk of the city of London


also finally as you note, it was not really a bankers bailout it was a depositors bailout

cells

RJP33 wrote: »

What always confused me is why we paid such a high share price on purchase? The bank was on the brink of collapse and the price dived after purchase, surely we could have negotiated a better deal?

the way i understand it, if i am correct, is that the share price was irrelevant

the bank needed X amount of money and the government basically could dictate how much of the business it wanted for X. It seems they went with 80% for X but they could have said less or more. They could have even said 99.9% but they probably wanted to give the impression that it wasn't being nationalised so just picked 80% of the business.

So the best possible (in term of limiting loss/making the most profit) would have been to go for close to 100% of the business rather than 80%...which looking at RBS market cap means that the gov would be about £6B better off had it pushed for near 100% of the business

ruggedtoast

Phew, Trust Fund George keeps another troop of his banker buddies away from the Job Centre Plus. And at a cost to the taxpayer of only £250 billion. Well, I hope they'll make a donation to Tory Party HQ, with the taxpayers money they got. Of course they will.

Masomnia

ruggedtoast wrote: »

Phew, Trust Fund George keeps another troop of his banker buddies away from the Job Centre Plus. And at a cost to the taxpayer of only £250 billion. Well, I hope they'll make a donation to Tory Party HQ, with the taxpayers money they got. Of course they will.

I take you've been buying the shares then?

Thrugelmir

ruggedtoast wrote: »

Phew, Trust Fund George keeps another troop of his banker buddies away from the Job Centre Plus.

RBS were Gordon's mates as were regular vistors to no 11.

padington

michaels wrote: »

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....

Ha ! Love the logic.

BobQ

So what would it take to make a profit out of the sale, given that Osborne seems content to sell at a loss?

ruggedtoast

Masomnia wrote: »

I take you've been buying the shares then?

Apparently we all have. I'll be looking forward to my dividend when Ossie sells them off.

ruggedtoast

Thrugelmir wrote: »

RBS were Gordon's mates as were regular vistors to no 11.

Well he did famously orate to a bunch of bankers that he intended to do to the wider UK economy what they were doing to the Finance industry. He certainly delivered on that.