RBS signals sale of taxpayer’s stake could begin by next year

RBS said the Government should be able to start selling off its stake within a year after the bank reported its best quarterly profit since 2011.

Chief executive Stephen Hester said the taxpayer could make a loss initially given the depressed state of bank shares and tougher regulations.

The bank’s chairman Sir Philip Hampton said the recovery would be “substantially complete” by the middle of 2014.

When that happens RBS and the Treasury will launch a prospectus to sell shares to investors.

First quarter figures showed the bank’s turnaround efforts are paying off as it reported pre-tax profits of £826m in the first quarter, up from a loss of £1.5bn in the same period last year, its best performance since the third quarter of 2011.

The Government pumped £45.5bn into RBS to keep it afloat during the 2008 financial crisis, giving it an 82 per cent stake in the bank.

Taxpayers are currently sitting on a paper loss of £18.5bn.

The Government is keen to sell its stake in RBS, but it is under pressure to get a good deal for taxpayers.

“There may well be a cogent case for starting at a lower price but I believe the average price can, and should, be above the Government purchase price,” said Mr Hester.

He said he had not held any explicit talks about a sale with the Government.

“Privatisation would be a terrific thing for the country and for RBS, but it’s very much a decision for the Treasury,” he said.

Mr Hester, who went to Easingwold Comprehensive in North Yorkshire, has overseen the disposal of £900bn in assets at RBS in order to focus on lending to households and small businesses.

“We expect to substantially complete the bank’s restructuring phase during 2014,” he said.

RBS said it expected operating costs to be below the analysts’ expectations of £13.2bn this year and it expects further cost cuts in 2014 and 2015.

RBS’s investment bank’s income fell short of expectations and it said it expected a muted year as it cuts back on risk and shrinks the business to focus on fixed income products.

Core operating profit fell to £1.3bn against £1.6bn a year earlier after the investment banking division saw earnings more than halve to £294m from £826m a year ago.

The bank, which has to sell 315 UK branches to meet demands from European regulators, said it is working towards floating them on the stock exchange.

It is also open to other options and is talking to potential investors. It expects to rebrand the business as Williams & Glyn’s.

Mr Hester said work to fix the banking giant will be “substantially complete” by 2014, allowing RBS to look “much more like a normal bank which can serve the economy and customers properly”.

“The clean up of RBS can be accomplished under our own steam in the next year, year and a half. I think we will be substantially done next year.

“Obviously, it’s not my job to decide how public money is spent, I think most people believe enough public money has been spent on RBS and are looking forward to getting it back.

“So we can deliver an RBS that can do its job and is cleaned up in the not-too-distant future. The other debates are for Government, Government sets how to spend its money.”

Mr Hester said he was “open” to suggestions such as splitting the bank to remove bad assets.

“I think the critique would be the use of taxpayer money in large amounts and the time it would take,” he said.

“The extent to which there are advantages are in the eye of the beholder.

“A privatisation would be a terrific thing for the country psychologically and taxpayer money would be freed up for other uses,” he said.

He added that first quarter results proved RBS chiefs were “cleaning up this bank successfully”, coming after recent calls for it to be split into a good and bad bank.

Bank of England governor Sir Mervyn King attacked the handling of the bank’s future in a parliamentary hearing in March and said RBS should be broken up.

Pre-tax profit figures were flattered by the absence of a large bill for payment protection insurance (PPI) mis-selling claims, as well as the lack of a hit from accounting charges for changes in the value of its own debt, which combined to send RBS into the red by £1.5bn in the first quarter of 2012.

Shore Capital analysts said the results for the core business were “disappointing”.

Analyst Gary Greenwood said: “Overall, we expect the market to be disappointed, but perhaps not too surprised, by the weak markets performance in the core business.

“However, the improving capital position and better cost guidance may help tone down concerns here, albeit the market will be keen to understand whether RBS will need to take additional action during the year to close up any deficit versus that allegedly identified (but not disclosed) by the FPC, which is understood to be around £6bn.

“Overall, we remain cautious on RBS shares which remains our least favoured stock in the sector.”

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