Business Irish

Friday 23 March 2018

UK drops strong hint it will sell off Ulster Bank assets

THE British Government has strongly hinted it will sell off Ulster Bank assets as part of a review of its ownership of the troubled RBS group.


Chancellor George Osborne said he has ordered an urgent review, to report in the autumn, into the possibility of breaking up Ulster’s parent RBS into a "good bank" and a "bad bank", to separate out toxic assets and risky loans from parts of the business which support the economy.

The review will particularly focus on assets in Ulster Bank and UK commercial real estate, and will not involve any further injection of taxpayer money into RBS.

But the Chancellor offered no timetable or price for share sales and said the sale of the Government's stake remains "some way off".

Mr Osborne said there was "no doubt" that RBS remains "weighed down by too many poor assets", including loans issued in the pre-2008 boom which have since gone bad.

He poured cold water on expectations of a sell-off at a loss by saying: "I don't want a quick sale of our RBS shares. I want the right sale - the right sale for the British people.

"I will only sell our stake in RBS when we feel the bank is fully able to support our economy and when we get good value for you, the taxpayer. In our judgment, when it comes to RBS that moment is some way off."

He added that he was also paving the way to return the partially state-owned Lloyds bank to the private sector.

Mr Osborne said Lloyds was in a "good position" with growing investor interest and shares trading at "around the price where selling would reduce the national debt".

The Government bought 39pc of Lloyds shares as part of a multimillion-pound bailout at the height of the financial crisis in 2008, when it also purchased 81pc of the Royal Bank of Scotland.

Speculation has been mounting that the Treasury wants to begin the process of selling its stake before the 2015 general election. Prime Minister David Cameron recently raised the prospect of selling RBS shares at a loss.

Mr Osborne said the UK economy has "left intensive care" and is "moving from rescue to recovery", telling an audience at Mansion House in the City of London last night: "Nothing better signals Britain's move from rescue to recovery than the fact that we can start to plan for our exit from Government share ownership of our biggest banks."

Meanwhile Sir Mervyn King, the outgoing governor of the Bank of England, who is being made a peer, said more money must be pumped into the economy to underpin the UK's "modest" recovery.

In his final Mansion House speech, Sir Mervyn said there is a "powerful case" for more money printing while the battered eurozone economy and Britain's hamstrung banks continue to hold back growth.

He backed the Government's plans to sell its stake in Lloyds, calling for "decisive action" on Britain's part-nationalised banks.

Mr Osborne said last night: "I can announce that we are actively considering options for share sales in Lloyds. Of course, we will only proceed if we get value for the taxpayer. And we have no pre-fixed timescale or method of disposal.

"For the first block of Government shares, an institutional placement is likely to be the most effective way of managing risk and getting value. So five years on from the financial crisis, we can now take the first steps to returning Lloyds to the private sector where it belongs. And for later sales of shares, we will consider a retail offering to the general public."

The Government believes a sale price of 61.2p would allow it to recoup the £20 billion it ploughed into the bank. Shares yesterday closed down 0.42p at 61.76p.

Mr Osborne also announced that a market review of small business banking launched today by the Office of Fair Trading will include an assessment of the impact that the sale of Lloyds and RBS branches to new "competitor" banks will have on competition in the sector.

More broadly, he warned that risks remain to Britain's economic recovery, including the "fragile" state of the eurozone, high debts at home and recent volatility in financial markets.

"Let me say tonight: the British economy is healing," said Mr Osborne. "We are moving from rescue to recovery. But while Britain has left intensive care, we still need to secure the recovery - and make sure we continue to treat the ailments that brought us low in the first place. Full recovery won't be easy but I won't let up in my determination to put right what went so badly wrong."

In response to his speech, shadow chancellor Ed Balls said: "We have always argued that the future of RBS and Lloyds should be driven by the best interests of the British taxpayer and the wider economy, not a political timetable.

"George Osborne has now been forced to back down from the foolhardy idea of a pre-election fire sale of RBS. This would have meant a loss of billions of pounds to the taxpayer at the current share price. The Government's review of the future shape of RBS is welcome but it must look at all the options, including the case for splitting retail and investment banking at RBS, so that there is no return to business as usual.

"On Lloyds, we are clear that the taxpayer needs to get its money back but following the collapse of branch sales to the Co-op Bank it's vital that we have a new strategy from the Government to boost competition on the high street.

"The Chancellor must get on and implement the radical blueprint of the Parliamentary Commission's report. He should do this without delay by amending the Financial Services Bill currently going through Parliament. Britain needs reformed banks to work for the economy, serve their customers and better support businesses for the long term."

Sir Mervyn, who hands over to new governor Mark Carney next month, has repeatedly called for another £25 billion of quantitative easing (QE) to boost the Bank's asset purchase programme to £375 billion.

But he was denied his parting wish for more money-boosting measures this month after being outvoted in his final Bank rate-setting meeting.

Sir Mervyn, who has headed the Bank since 2003 and overseen 16 years of rate-setting, told last night's banquet in the City that despite a recovering housing market, upbeat business surveys and improving money supply, "the need to support the recovery remains".

He said: "It is too soon to say the job of securing recovery is complete. There is a powerful case for more stimulus."


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