Should Mr Hammond have hung on for a better price? After all, as Emma Powell notes on page 10, the bank is operationally on an improving trajectory, with capital levels up and legal risks diminishing. But the chancellor faces a Catch 22 – the state’s remaining 62 per cent stake is an enormous stock overhang which will hold the shares back for some time, with little option but to slowly drip-feed shares into the market. It is only as that stake shrinks that the market may indeed begin to recognise the recovery taking place at RBS – but until that happens, new investors will expect a discount and the shares will continue to languish.
There are, of course, those on the opposite end of the political spectrum who take the opposing view to Mr Hammond and believe that a nationalised bank is in fact a good idea, and that all future share sales should be halted. Chief among them is shadow chancellor John McDonnell, who argued that we need “[a] bank reorganised under public control to help provide the patient, long-term investment capital that businesses across the country so urgently need”.
Yet given the efforts taking place to encourage competition in the banking industry it isn’t entirely clear just how hanging on to RBS will help any government achieve its economic objectives. The state yoke has hardly transformed RBS or even re-privatised Lloyds into champions of the small business sector – both have faced stinging criticism from small business groups such as the SME Alliance over their reluctance to lend and onerous terms when they do, arguing that challenger banks are proving much more effective supporters of smaller businesses.
Fintech is also playing its part in financing SMEs: data from the British Business Bank suggests that technology-enabled sources of financing such as peer-to-peer lending are growing at a rate of knots, while the new Open Banking initiative will only stimulate further innovation from fintech upstarts that steals share from the major lenders. Meanwhile, the recent technology troubles at TSB show just how difficult banking incumbents are finding it to adapt to a new digital future, while – as John Baron notes on page 27 – big technology groups could soon bring further disruption to financial services.
The latest RBS placing was said to have been substantially oversubscribed and completed in 30 minutes. Given the major upheaval facing the banking industry, I’d suggest the chancellor takes advantage of that enthusiasm and accelerates RBS’s return to private ownership – not that I’d be buying the shares.
