Jeremy Hunt wants to rekindle the spirit of privatisation to sell the government’s remaining shares in NatWest/RBS, but will it work, asks TERRY MURDEN
While the Chancellor’s cuts in national insurance and the uplift in pensions were the stand out headline grabbers, there were a number of eye-catching announcements in the Autumn Statement that had not been trailed in advance. One was the plan to finally dispose of the taxpayer’s stake in NatWest, or what was the Royal Bank of Scotland when the Labour government bailed it out in 2008.
Jeremy Hunt slipped the announcement into a long list of economy-boosting measures, which suggested he didn’t want to attract much attention to the government effectively writing off billions as a result of selling the shares at a whopping loss.
It prompted barely a blink from a packed House of Commons, maybe because many of the current crop of MPs are just too young to have understood his quip that it was “Time to get Sid investing again”.
For those unfamiliar with the Ted Sid campaign, it was a hugely successful advertising slogan that encouraged Mrs Thatcher’s Britain to invest in British Gas, one of the utilities that went to the stock market in the 1980s and early 1990s privatisation programme.
This was a time when investing in the stock market was something that Surrey stockbrokers did, while everyone else put their money in a savings account or gambled it on the horses. The fictional Ted Sid character was seen as ‘everyman’ as Britons were urged to buy shares in British Gas, which in 1986 was about to be listed. Other blue chip names that were state supported, including British Airways, British Telecom, and the water and electricity boards, joined the public markets.
Mr Hunt believes it is time for the British public to rekindle its appetite for buying shares and that a similar Tell Sid campaign will help him sell off the 38.75% stake that the government still holds in NatWest after a series of share sales over recent years.
Whether the entire holding will be marketed as a retail offer is not known, but what is clear is that there is no chance of the government recovering the full £46 billion spent in two tranches in 2008 and 2009 buying shares at an average of 502p to save RBS from going out of business. With the prospect of the remaining shares being sold at a discount, they closed after the statement 2.80p (1.35%) lower at 204.5p.
In the years following the rescue, the bank made losses and its shares tanked. The Government began selling at a loss, offloading a chunk of shares to institutions at 330p per share in August 2015. Other sales have been priced even lower. In March 2018 the Treasury said it would continue selling around £3 billion worth of shares every year until 2022-23. At that rate, the last RBS shares were to be sold in 2025 – 17 years after the first bailout.
In recent years, and after successive chief executives, the bank has finally swung back into profit, been renamed NatWest (almost certainly to give it a reputational makeover), moved the focus of its operations to London, and has resumed dividend payouts.
And so the time has come for it to be handed fully back to the private sector. A campaign may well be kickstarted before the General Election, which is likely to take place in the spring or early summer.
But who will buy into a banking sector which has produced poor returns and continues to attract a sceptical response from punters who have already had their fingers badly burned?
Laith Khalaf, head of investment analysis at investment platform AJ Bell, notes that it has “done a lot to repair its balance sheet through assets sales, and de-risked its business by re-focusing on traditional retail and commercial banking, albeit with a bit of investment banking on the side.”
He adds that we all already own a slice of NatWest thanks to the bailout, and the government’s exit from the shareholder register and a retail share sale will turn this arrangement from a mandatory stake for the many to a voluntary position for the few.
“Earnings growth from a company like NatWest isn’t likely to set the world on fire, especially when compared to the likes of Apple and Microsoft who are capitalising on the tech boom,” he says.
“The UK banking sector has been deeply unloved for years, and shares trade at lowly valuations. That does provide some upside potential for the share price should there be a positive reappraisal of the UK economy or the stock market, but that’s already been a long time coming.”
Khalaf says that probably more enticing for investors is the prospect of a 7% dividend yield which will help when they come to market. This yield will likely be boosted by a discount to the market price offered by the government. However, if there’s no discount, investors might as well buy shares on the open market.
“For those experienced investors accustomed to holding shares, this might be an opportunity to pick up a slice of a high street bank at an attractive price,” says Khalaf.
“NatWest is one of the 100 most bought investments by DIY investors on the AJ Bell platform so far this year, so it already has some cachet with private investors. For those who don’t invest today, a revival of the ‘Tell Sid’ message with public backing for retail investors to get involved in share investing, could be a nudge for them to consider doing so for the first time.”
A trick that Mr Hunt may have missed in order to stimulate interest was to provide a wider incentive for people to invest in shares. There had been talk of more action on ISAs and creating a special ISA directed at investments in British-only companies.
Famously, some of those who received their first British Gas share certificates (they were sent out in the post in those days) thought they were bills and went to the Post Office to make a payment.
Mr Hunt will find that the younger generation of Sids are more investor savvy, weaned on DIY investment platforms and a more enterprise-led culture. They have become more familiar with the vagaries of the stock market and it will fall on NatWest to show it is a bankable investment.
Terry Murden is a former business editor at The Sunday Times Scotland, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business
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