British government to begin sale of RBS stake

The British government announced Wednesday it would begin selling its Royal Bank of Scotland stake, even though its share price is below what it paid to rescue the bank in a record 2008 bailout.

In an annual address to the London financial community, Chancellor George Osborne said the government would begin selling its 80 percent stake in RBS, which it rescued with public money at a cost of £45.5 billion ($70.6 billion, 62 billion euros).

"In the coming months we will begin to sell our stake in RBS," Osborne told the audience at Mansion House, the residence of the mayor of London.

"Yes, we may get a lower price than (then-ruling party) Labour paid for it. But the longer we wait, the higher the price the whole economy will pay."

The government paid roughly 500 pence a share in its bailout, but shares were worth just 354.8 pence at the close of trading on the London Stock Exchange on Wednesday.

Osborne cited a report by investment banking company Rothschild, which recommended the sale go ahead and predicted that once some shares were sold, the market value of the government's remaining stake would rise.

"They say that beginning sales now, and increasing the free float, will improve the marketability of our remaining stake," Osborne said.

Osborne said RBS shares would be sold to institutional investors first, with members of the public hopefully able to "take part in due course".

A potential taxpayer loss of £7.2 billion on RBS, if all shares were sold at their June 5 price, would be offset by proceeds from other sales such as from fellow bailed-out bank Lloyds, the Treasury said in a statement.

In all, the taxpayer would recover a total of £14 billion more than what had been paid to rescue the banks during the financial crisis, it added.

Lloyds Banking Group was also rescued with public money during the crisis, and the government has gradually sold the 40 percent stake to under 19 percent, with plans to accelerate sales in the coming months.

But RBS has faced headwinds since its bailout.

It was hit with a record fine from a regulator last year over an IT meltdown, and posted a loss in April due to restructuring costs and litigation over its involvement in the United States sub-prime mortgage market.

Chief executive Ross McEwan is overseeing a reduction of RBS's investment bank activities and a substantial cut-back on operations outside Britain.