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RBS' Stake Sale To Result In Loss Of Billions For Taxpayer

Published 04/01/2018, 10:02 PM
Updated 07/09/2023, 06:31 AM

In a report published recently by Office of Budget Responsibility, plans to sell British government’s stake in The Royal Bank of Scotland Group PLC (LON:RBS) (NYSE:RBS) worth £3 billion in each of the five financial years beginning 2018-19, were disclosed.

During the financial crisis, RBS had received about £45.5 billion from the government based on its share price that was nearly 500 pence at the time. However, the shares have now declined to about 250 pence.

The government is likely to incur a loss from this sale, as shares of RBS are currently trading at half the price that was paid for its bailout.

Also, the forecast comes amid speculations of an ideal time to return about 70% of the state-owned bank to private hands.

In an investor conference held in March 2018, investors at RBS had put forth wishes to put behind the impending settlement with the U.S. Department of Justice over deceptive mortgage marketing strategies, before beginning with plans to re-privatize the bank. RBS expects the settlement to make a significant dent in its financials.

Further, Oliver Holbourn, the chief executive officer at UK Financial Investments (“UKFI”) has resigned from his post. UKFI is responsible for handling sale of the government’s stake in RBS. Though there is not much clarity whether the CEO’s exit would delay the process, Chairman of UKFI, James Leigh-Pemberton, stated that the selling might happen after the mortgage mis-selling probe has been resolved.

Pemberton also reflected that unfavorable market conditions might affect the timetable. He said, “A long period of muted risk sentiment and a lack of demand on the part of investors to increase their exposure to equity markets could have an impact on the deliverability of this sale.”

Though the bank reported annual profit for the first time in a decade, Royal Bank of Scotland might incur loss in 2018 due to the pending legal settlement. Nevertheless, it remains committed to improve its performance. Also, the bank continues to make investments in technology in order to cope with changing customer preference.

Shares of Royal Bank of Scotland have gained 22.9% over the past year, outperforming 11.5% growth recorded by the industry.

The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space are Banco Bilbao Viscaya Argentaria S.A. (NYSE:BBVA) , BanColombia S.A. (NYSE:CIB) and The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) . All these stocks carry a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Banco Bilbao has been raised 3.7% for the current year, in the last 60 days. The company’s share price has jumped 6% in the past year.

BanColombia has witnessed 7.3% upward earnings estimate revision for 2018, in the last 60 days. Its share price has risen 3.8% in the past year.

Bank of N.T. Butterfield & Son’s shares have gained 38.6% in a year and its earnings estimates for 2018 have moved up 1.2% in the last 60 days.

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Royal Bank Scotland PLC (The) (RBS): Free Stock Analysis Report

Banco Bilbao Viscaya Argentaria S.A. (BBVA (MC:BBVA)): Free Stock Analysis Report

BanColombia S.A. (CIB): Free Stock Analysis Report

Bank of N.T. Butterfield & Son Limited (The) (NTB): Free Stock Analysis Report

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