28/11/2008

Government To Buy RBS

The Government is to take up 57.9% ownership of the Royal Bank of Scotland.

The government will pay about £15bn for the majority stake in RBS after shareholders failed to buy a large proportion of the new shares the bank had offered.

It will also buy £5bn of preference shares in the bank.

This was not unexpected as the new share price offered was 65.5p; about 10p above the price at which the shares were trading.

Existing shareholders agreed to buy nearly 56m shares – that’s just 0.24% of the new shares on offer, at a cost of £36.7m, meaning an immediate paper loss of £5.6m.

The gap between the offer price and the current share value also means taxpayers have made an immediate paper loss of £2.3bn based on Thursday's closing share price.
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There will be strings attached to the government ownership, which RBS shareholders voted in favour of last week - the bank will return to "normal" lending practices and will guarantee overdraft rates and contracts for its business customers for at least a year. There will be a loss of freedom in areas including pay and dividend policy.

RBS Chief Executive Stephen Hester said: "We regret that existing shareholders did not take up their pre-emptive rights but understand that market sentiment toward the banking sector made this uneconomic in the short term.

"There remain substantial uncertainties and challenges outside our control but for our part the job is underway."

The government's shares will be held by a company called UK Financial Investments Ltd, chaired by Philip Hampton, chairman of Sainsbury's and former finance director of Lloyds TSB.

The company aims to maximise value for taxpayers and prevent politicians making business decisions about banks.

(GK/KMcA)

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