Eager to avoid a similar reaction, the Japanese government earlier this month floated Japan Post and its banking and insurance subsidiaries at a price intended to lure private investors - a substantial discount to book value - without strongly underselling the state assets. Still, the shares spiked higher on the first day of trading on demand from retail investors, and have stayed there. After some volatility the banking subsidiary's shares are trading close to ¥1,780 (£9.53), more than a fifth above their offer price. The insurance subsidiary is trading around ¥3,450, some 57 per cent higher than the ¥2,200 at which it was initially priced, though the current trend is downwards.
And yet there has been little uproar. This is perhaps explainable against the domestic backdrop. Japanese prime minister Shinzo Abe is keen to drive economic growth by encouraging his citizens away from low-returning savings into riskier equity holdings that can encourage the wider economy. In this respect, the policy looks to have achieved its objectives: the retail offer was heavily oversubscribed. Questions have been raised about whether the much-delayed public offerings were catching up with a shift in risk appetite, rather than encouraging it. But with Japan’s economy contracting by 0.8 per cent in the third quarter, against expectations of 0.3 per cent, market-watchers may be more concerned about the bigger picture.
In the UK, the government can only hope for such a benign reaction to its discounted bank sell-offs. A predictable furore ensued when it began to realise its loss on the bailed-out Royal Bank of Scotland (RBS). The government has been advised that returning the bank to the private sector will "change perceptions" in the market and improve the share price. But the kindest response possible to the further falls in RBS's market capitalisation would be that it is early days. The government placed 630m shares at 330p three months ago, but now the price is yet lower at 313p, with the bank's slow return to profitability raising questions about whether the government will have to delay this programme further.
Political realities, in the form of electoral cycles, and philosophies, such as reducing government intervention in the banking sector, often trump the desire to sell higher than the buy price. The government got a better reaction to this year's sale of its Eurostar stake, which the National Audit Office signed off as providing value for money. Still, the taxpayer lost out on dividends expected to provide almost as much over the next decade as the £757m in sale proceeds. The timing of the sale was "primarily driven by the desire to sell prior to the 2015 general election", the NAO concluded. Thus continues the recent record of governments of both stripes selling state assets on politically driven timetables to free up spending money.
The more immediate question is the public share sale of Lloyds (LLOY), due next spring. The government has promised a discount of 5 per cent on the market price, and in an attempt to encourage long-term ownership has added a bonus share for every 10 shares held for more than a year. The problem is that Lloyds shares are currently trading close to the 73.6p break-even price for the taxpayer, and the level below which the government has halted previous institutional share sales.
So which is it: profit or principle? The chancellor, George Osborne, would be forgiven for wishing that he had never promised this retail sale in the first place. Perhaps we will get a hint, or more than a hint, of his latest thinking in this year's Autumn Statement. There are many reasons to go ahead. Encouraging private share ownership is good in the UK for the same reasons that it is good in Japan, even if our nation's households do not have so much locked up in the bank. What's more, a promise has been made, investors have registered interest in their droves, and the government will be loath to withdraw its discount offer. But timing will be crucial. Expect a managed message.
