LONDON — There’s been a distinct change of mood music about prospects for sale of the government’s holdings in Lloyds Banking Group PLC (ADR) (NYSE:LYG) and Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) . Twelve months ago, the chances of any sale were downplayed. Now both are being openly speculated about.
A sale of some of the government’s shares should be a big boost for the shares. When might we see some action, and what form might it take?
It seem pretty clear that David Cameron wants to do something concrete before the 2015 General Election. It would show that the financial crisis is finally being solved, and free the government from the headaches of bank ownership.
All kinds of scenarios have been bandied about. A plan to distribute shares in both banks to all holders of national insurance numbers has apparently been discussed in the Treasury. The complexities of adding 40m-plus investors to the share register would dwarf the logistics of the famous British Gas “Tell Sid” mass privatizations of the 1980s, and to my mind make it a non-runner.
But with politics driving the privatization, there’s a good chance there’ll be some form of public subscription. It would help the government to fudge how much tax-payers lost on the whole bail-out debacle. And it might even serve as a form of “helicopter money,” one of the more extreme options that have been floated for getting the economy moving.
For the banks and their existing shareholders, institutional appetite is more significant. Institutions would probably buy new shares, strengthening the banks’ capital. Under its present governor, at least, the Bank of England is still keen to see higher capital levels.
Both Lloyds and Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) have made good progress on restructuring. Last year Lloyds Banking Group PLC (ADR) (NYSE:LYG) shed $40bn of distressed assets against a plan of $25bn, while Royal Bank of Scotland Group plc (ADR) (NYSE:RBS)is predicting that this will be the last year of substantial restructuring. With PPI and LIBOR settlements largely behind them and hints of resumed dividend payments, the banks are starting to look more attractive to institutions.
Royal Bank of Scotland Group plc (ADR) (NYSE:RBS): the political football
Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) is the bigger political football, with the government owning a controlling 82% interest.
Management has been swift to respond to the owner’s new rhetoric. Chairman Sir Philip Hampton has said he hopes a sell-off could start as early as 2014, and CEO Stephen Hester has made similar bullish remarks.
Perhaps they perceive that if there’s a political imperative to do something next year, it’s better to be making the running themselves. The government would find it much harder to interfere in RBS’s business once further shares had been sold.