David Cameron is still Prime Minister. George Osborne is Chancellor. We are years away from the horrors of the Russia-Ukraine war and the Covid pandemic. Brexit is just a glimmer in the eyes of Eurosceptics.

It’s 2013, and five years after the height of the global financial crisis, the UK government is still struggling to find a way to break free of the gigantic stakes it holds in the country’s biggest banks, following massive bailouts. of 2008.

Trickiest of all is the large stake in RBS (84 per cent at its peak) that it received in exchange for its £45.5bn bailout from the Scottish lender, the world’s largest bank bailout.

Enter the Policy Exchange, the Treasury’s favorite think tank, and a plan — adapted from an earlier idea by Portman Capital and the Liberal Democrats — to distribute shares to the UK population in one fell swoop.

The distribution would be free to any adult who signed up, but would be based on a collateral-like structure that would only be worth money to recipients if the share price rose above the minimum price; when the instrument was sold, that minimum value would be passed to the Treasury and any higher portion would be retained by the individual.

The idea was considered, but dropped, as too complicated and potentially value-destroying for taxpayers. A decade later, there are good reasons to think again.

The most obvious is the need. RBS, now renamed NatWest, is still 41.5 percent owned by Treasury. Since 2013, the action has on average traded just half the average ransom price. Eight years after the government began its trickle-down strategy of selling small amounts of RBS shares to institutional investors and supporting share buybacks, it dumped less than half the stake and crystallized big losses in the process.

(Treasury’s interest in NatWest is recorded in the government accounts and the financial evaluation of the Office of Budgetary Responsibility. Based on the bank’s total market capitalization today of around £25bn, the stake is worth just over £10bn, although after funding costs the Treasury has lost £32bn net) .

But the logic of sticking with the original desire to recover the initial investment, or as close to it as possible, is unrealistic: the asset was almost certainly overvalued at the time of redemption; the bank has been deliberately downsized over the last decade and a half; and the operating environment for banks like NatWest has never returned to the boom times of the years prior to 2008. Therefore, NatWest’s peer valuations remain permanently down.

That being said, the bank appears to be in better health than it has been for many years. Despite a challenging economy, he recently reported an increase of 49 percent in profit before taxes for the first quarter of the year, exceeding forecasts. It is time for the government, and those who hold it accountable such as the National Audit Office, to accept that the benchmark redemption price is no longer a relevant metric and that other value-for-money criteria should be prioritized.

All of this is a far cry from Cameron’s stated desire a decade ago to sell the stake. “as fast as possible” and for a high price. To have failed to do so is politically uncomfortable: for the state to own a bank, even partially, is not Tory good looks.

Liquidation to date has been painfully slow: there has been a limited focus on selling at prices that compare to the redemption valuation and fear of damaging the value of the remaining shareholding if the market is flooded with too many shares too quickly . .

This means that a massive one-time distribution is the only way to exit the position in the short term. A standard Thatcherite clearance is an option; less risky, although more complicated, would be the distribution plan, using a clever structure to minimize price volatility.

A related reason for pursuing a liquidation strategy is the actual, perceived, or prospective risk of continued political interference in the operation of the bank.

Even under a supposedly non-interventionist conservative administration, there have been cases, whether in relation to bonus distribution or business strategy. There may be good reason to think that some water, utility or rail companies – many launched as part of Margaret Thatcher’s economic reforms in the 1980s – have performed poorly after privatization and may be better in hands public. But the inherently risky and commercially minded business of banking does not mesh well with government ownership.

In addition to the logical and political arguments, there would be technical benefits to getting out quickly. The very fact that the Treasury owns a 41.5 percent stake is a vicious cycle that “sticks out”: the market knows it will sell at some point, flooding supply, so in the meantime it submits the stock value. Distribution through an escrow structure would mitigate this risk because there would be no incentive for an individual to sell until the price rose above the floor.

At the same time, a distribution would generate another technical benefit for the stock. Large equity holdings, such as those owned by governments, are typically not factored into the index weights for institutional investors. As soon as the government’s NatWest shares became part of the free float, demand would increase dramatically. Based on 2013 Policy Exchange calculations, index funds would have needed to buy shares equal to nearly half the government’s stake at that time.

Prime Minister Rishi Sunak and Foreign Minister Jeremy Hunt have prioritized stability in the wake of the alarming leadership of Liz Truss and Kwasi Kwarteng. But they also speak frequently about the need for economic dynamism, particularly how the culture of fairness in the City of London and the UK could be strengthened.

One effect of the Thatcher privatizations in the 1980s, which were largely directed at customers and staff, was to increase the number of UK retail shareholders, from around 3 million to 10 million over the course of the decade. according to the World Trade Organization.

It’s hard to get any reliable data on how the numbers have evolved since then, but overall it seems to have risen and fallen in line with economic prosperity. It fell sharply after the 2008 financial crisis.

More recently, it’s grown a bit again as a new generation of investors has bet on “meme” stocks (although that trend, which echoed the cryptocurrency trading craze, has little to do with backing the fortunes of UK companies in the long term). . recent polls from the Wesleyan Financial Group suggests that the retail shareholder count has stalled at just over 7 million.

What better way to accomplish the important mission of reviving a tired equity culture than to use a reprivatization of NatWest as a means to launch a new, improved 2020 version of Thatcher-era sell-offs and the shareholder democracy they fostered?

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