RBS – and the prospects of a ‘helicopter shares’ giveaway

18th February 2013


It sometimes feels that anything to do with Royal Bank of Scotland twists logic a little. The British state owns more than 80 per cent of the bank, but can’t tell it what to do – such as lending to small businesses or scaling back bonuses.
Ministers can put pressure on the bank about all these issues and that has clearly had some impact, but they can’t issue direct orders.

Even the things that the Government can do come at a price. It could sack the board, though that would very likely hit the value of RBS shares and damage market confidence much further.

More significantly, the prospects for a float that would see the UK taxpayers at least get their money back seems very far away. The bailout cost £45bn – the current value of the shares at around 344p each gives a valuation about £14bn shy of the level needed to pay back the bailout cost in full.

As a result a share distribution to voters or to taxpayers is now being given serious consideration by the Chancellor George Osborne as the Independent reports. Previously the Liberal Democrats have been the main voice arguing for such radical action. As the paper reports, the Treasury is now taking the issue seriously and is conducting a review looking at the possibility of distributing the shares some time before the next election.

Less radically it may try and issue shares on to the market in tranches with the public able to buy them at a discounted price.

Any distribution would have a similar impact eventually. Either swiftly or over time, the bank would be returned to private ownership. Politicians would no longer face damaging accusations that they did nothing while a bank that they ‘owned’ breached this rule or other or behaved in ways unacceptable to the public.

However Mindful Money has a few questions.

If the Exchequer viewed the investment in RBS as if it were a typical investor, would it really be cutting losses when waiting three or four years could see them break even? Different investors will have different views of course. But it does run contrary to a lot of the advice shareholders are usually given about not selling out near the bottom.

In addition, a lot of those receiving shares may be holding them directly for the first time. Should they sell or hold? It is interesting that when some of the former building societies crashed during the crisis, there were still many small shareholders who owned shares from the demutualisations of the 1990s. So we’re not sure how good it is if these shares are stuck in the filing cabinets or even the sock drawers of middle Britain. Then again, if all those small shareholders found a way to make their views known, and they might be in the mood to so so, it could make for some very intereting AGMs.

Finally, if they are going to do something akin to dropping helicopter money, explained on website Economicshelp.com, wouldn’t it be better to do it with money than with share certificates? Economists continue to argue about the merits, but this would be helicopter money in slow motion. The extent of the economic boost would be up for debate, though of course, it always is.

This week it seems more likely the public may be receiving shares. But we are sure there will be a few more twists in the logic and in the RBS tale before we get there.

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