‘Scam’: RBS criticised for plan to spend ‘public money’ to speed up re-privatisation

Ben Wray

George Kerevan: “This is RBS using OUR money in a scam to raise share prices – £1.4bn of state-owned, bailed-out bank cash that should be used to invest in the economy”

  • Plan, backed by shareholders, will see “excess capital” of the bank used to buy government shares
  • Share value is currently about half of what the government paid in its 2008 bailout of RBS
  • Labour and SNP both opposed to selling off the shares at current value, but neither back full nationalisation or breaking-up the bank
  • RBS also being sued by Newham Council over the terms of its ‘Lobo loans’, which many Scottish Councils have with the bank

AN RBS special meeting of shareholders on Wednesday [7 February] agreed to use “excess capital” to fund buying shares back from the UK Government to hasten re-privatisation of the bank, a move which finance journalists described as a “scam” to raise share prices.

The bank was taken into majority public ownership after the 2008 £45 billion bailout, and the share value has halved since then, meaning substantial losses for taxpayers on sales back to the private sector.

In November the OBR predicted that a sell off at current share values would mean a loss of £28.5 billion. 

Howard Davies, chairman of RBS, said at the special meeting that the share buy-back plan would see the bank “use some of its excess capital to buy back shares from the Government, at a time agreed with the Treasury.”

READ MORE: ‘Ransacked’: Expert slams UK Treasury involvement in asset-stripping RBS customers

The proposal, which would see £1.4 billion worth of government shares purchased by the bank, was backed by the majority of shareholders, with the government – still the majority stakeholder with 62.3 per cent – abstaining on the vote.

Economist and journalist George Kerevan said the “excess capital” referred to by Davies was actually public money. 

“This is RBS using OUR money in a scam to raise share prices – £1.4bn of state-owned, bailed-out bank cash that should be used to invest in the economy,” he said.

Neil Mitchell, an RBS shareholder and financial campaigner, said at the special meeting that the bank was “running scared” from a Labour Government, which has said it wouldn’t sell of the government shares, at least not at current share values.

Ian Fraser, financial journalist and author of ‘Shredded’, a book on RBS, said that the sell-off was a “plan that allows the state-rescued bank to buy back shares from HM Treasury supposedly to accelerate its re-privatisation, inflate the share price and keep the bank out of Labour’s control.”

READ MORE: 10 years since the crash: Where did banking go wrong, and how do we fix it?

Jonathan Reynolds, Labour minister, said if they were in power they would not have agreed to the sell-off, stating: “If RBS is now paying dividends, and the price of the shares is under what was paid, we cannot see the rationale for selling more shares.”

But Reuters reported that Labour had “cooled on plans to nationalise or break-up RBS”, with the party now not seeking to exercise day-to-day control or introduce a financial transaction tax, as previously muted. The party has also established a regular “City surgery” to reassure the banking sector about its plans.

Reynolds told Reuters: “We don’t have a policy of day-to-day control of RBS. But there is clearly unmet demand in lending and a problem with financial inclusion.”

The SNP have opposed a sell-off at a loss to the public purse, but like Labour do not advocate public ownership of the bank.

READ MORE: Analysis: What would RBS have to do for the kow-towing from politicians to end?

Commenting on RBS’ re-privatisation plan, SNP Depute Leader Keith Brown MSP said: “A savvy government would be using their majority shareholding in one of the UK’s biggest banks to drive growth in the business and deliver better return on investment for the taxpayer.

“Instead, they’ve overseen wholesale branch closures – hitting Scottish consumers hard – and shipped off shares at a loss of billions to the public purse.

“In his upcoming budget, the Chancellor should give a guarantee over future sale of RBS shares which safeguards the interests of all of us, not just the major corporates.

“And when it does come to cashing in, let’s look seriously at how these funds are being reinvested.

“The financial crash had an impact on every community and has led to a decade of Tory austerity. We should be using any windfalls to build for the future. 

READ MORE: 3 Scottish councils could save over £1 billion by refinancing ‘Lobo’ loans, research finds

“A Fund for Future Generations, managed through Scotland’s new National Investment Bank, could create huge opportunities for inclusive growth, innovation, tackling inequality and building Scotland’s infrastructure for decades to come.”  

Meanwhile, RBS has also been hit by a lawsuit from Newham Council over the terms of controversial ‘Lobo loans’ introduce in the 2000’s, which begin at low ‘teaser’ rates before rising, partly dependent on the movement of the Libor rate, which many banks – including RBS – were find for rigging in 2010. 

The Council took out £578 million of Lobos, of which £150 million were provided by RBS. 

CommonSpace reported in November last year that Scotland’s three biggest councils – Glasgow, Edinburgh and Fife – could collectively save over £1 billion if they re-financed  their Lobo loans, according to Research for Action. 

Northamptonshire and Kent Council have struck deals with RBS over the re-financing of the loans. The bank has said it is “open to discussions” about Lobo loan re-financing.

Picture courtesy of Mark Ramsay

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