I’ve written before that the Government sees the state-owned banks as symbolically important. There are, they think, few better ways of casting off the memory of the Great Bust than by casting off their remaining holdings in Lloyds and RBS. Who knows? The public could even be compensated for all the years of austerity with some free shares, or perhaps a tax cut funded by the proceeds from any sale. It would be goodbye to Goodwin and all that.
So Osborne & Co. must be rather perturbed by the symbolism of RBS’s forthcoming accounts. You’ve probably seen the headline figure in the newspapers: the bank could face full-year losses of £8 billion. What makes it worse is the fact that some of this is due to financial malfeasance, before or around the crash. There’s £650 million tied to the mis-selling of payment protection insurance. £1.9 billion for fines relating to market manipulation and exploitation. And so on. It’s as though the ghost of Goodwin still haunts their spreadsheets.
The clearest sign of the Government’s concern comes in today’s Financial Times. Remember when there was happy speculation that RBS could be re-privatised before the election? Well, less so now. A “coalition aide” tells the pink’un that “we are not assuming any sale this side of the election”. It will almost certainly be left hanging around the neck of the next government. That great shares-for-all will have to wait, if it ever happens.
We shouldn’t exaggerate how bad this is for the Chancellor. For starters, he still has Lloyds to fall back on: it’s expected that, after making a middling sort of start last year, the Government could sell-off the rest of its 33 per cent stake in 2014. For seconds, it was never too likely that RBS would be hawked off in double-quick time. It is, after all, a much bigger, more complicated proposition than Lloyds. Some analysts reckon that a five-year “transition period” may be required before it can be fully reintroduced to the private sector.
But this is still a less than ideal scenario for Osborne. Whereas he might once have hoped to author (and claim the subsequent credit for) any RBS sell-off, it’s now looking like anyone’s game. The Lib Dems can propose something about it in their manifesto just as the Tories can. Labour can promise, if they choose, to give everyone free shares in the bank. And that’s before we get to the question of who will form the next Government. The answer to that could take RBS further away from Osborne still.
Which is one reason why the Chancellor might want to establish a taskforce, or some such, to look again at RBS’s future. It would suit the Tories politically to have, at the next election, detailed proposals and conditions for the bank’s return to private hands. But it also makes good business sense: this is not something that can be rushed, and the process ought to start now – even against the backdrop of that £8 billion loss.