The shareholders of the Royal Bank of Scotland have agreed to a scheme that allows the bank to acquire a maximum of £1.5 billion worth of shares from the government. It comes hours after the Labour Party declared that it would stop such a move if it came to power.
During a general meeting, 98.7 percent of the investors supported the said proposal. It is designed to speed up the privatisation of the bank which is still 62 percent owned by the state following the £45 billion bailout in the 2008 financial crisis.
The proposed scheme would see the bank able to acquire the shares back from the Treasury at a rate of 4.99 percent per year once it is approved by the Bank of England.
Howard Davies, the RBS Chairman, stated: “This is something that the board has carefully considered. The bank has a sufficiently strong capital position.”
In his Autumn budget, Philip Hammond, the British Chancellor, said that the government plans to cease its ownership of the bank by 2024, and the Conservative government has already administered two share sales.
Jonathan Reynolds, the shadow banking minister of the Labour Party, said that the party would put a stop to the privatisation of the RBS if it was voted in, in party down to the heavy losses that were sustained by British taxpayers on the shares of the RBS that have steeply declined in value since the bailout.
He stated: “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.”
The party has rowed back in the previous suggestions of fully nationalising the bank. He stated: “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.”
One of the shareholders in during the meeting said that the plan suggested that the bank was “running scared” from the possibility of a Labour government. He added that it was “abhorrent.” He said that the money should instead be used to pay compensation for possible legal settlements.
The shares acquired from the government are set to be cancelled, which would increase the value of the remaining stock.
The buyback could likely take place via three methods. The first is to buy back the shares as part of a wider placement by the Treasury, where the price that would be paid would be the same as that achieved through the open-market book building process.
The second would then be a bilateral deal where the bank acquires a certain number of shares at the relevant market price that is agreed with the Treasury. It will be independent of any larger placement of shares.
Lastly, the third is a ‘trading programme’ where the bank and Treasury each nominate a broker that will oversee the daily purchase of shares at the prevailing market price. The process would continue for a fixed time period or until a predetermined value of shares has been acquired by the bank.
In a statement, the bank revealed that none of the methods are considered to be mutually exclusive. RBS is set to announce its full-year results on the 15th of February.