Will RBS be fully nationalised?

2nd August 2012

The FT reports that cabinet ministers are having conversations about whether to spend around £5bn buying up the 18 per cent of the bank the government does not own. However, according to Jill Treanor, The Guardian's City editor, a split appears to be emerging within the coalition over the future of Royal Bank of Scotland.

Treanor believes that Liberal Democrat Vince Cable is arguing that it should be nationalised to bolster lending to small and medium-sized enterprises (SMEs), but the business secretary, who has made no secret of his belief that 100% control of RBS compared with 83% now would boost lending, appears to be failing to win the support of Cabinet colleagues, including the chancellor, George Osborne.

"The bank, which is due to report a first-half loss on Friday, is arguing that it is lending as much as it can, but Cable is thought to feel that Osborne could do more to foster lending given the lack of growth in the economy."

And Vince Cable is not the only Lib Dem who wants RBS nationalized. Last week, in an opinion piece for The Guardian, Matthew Oakeshott, a Treasury spokesperson for the Liberal Democrats said, "If RBS, the worst non-lender by far, won't do its basic job, we must nationalise it."

Ha added: "We weren't latter-day Che Guevaras when we called on Labour to nationalise Northern Rock, George. And it's not Marxism, just common sense, if we have to go from 82% to 100% ownership of RBS to make it a bank for business and growth."

Likewise, George Eaton of New Statesman argues that with the economy now in a deep recession, the nationalisation of RBS is exactly the sort of game-changer  the government should pursue.

The Treasury is adamant, however, that a full-scale nationalisation, which would cost another £5bn, is not on the cards. "We are committed to repairing and returning RBS to full health so that it is able to support the UK economy in the future, and the current strategy is working to achieve that. The government's policy has always been to return RBS to the private sector, but only when it delivers value for money for the taxpayer."

Moreover, Kiran Stacey and Sharlene Goff, the authors of the FT article, say that full nationalisation would be fraught with risks and complications.

"Apart from exposing the taxpayer to increased risk, it is also likely to need clearance from the European Union to avoid breaching state aid rules. A further difficulty is that it would make it more difficult to sell the government's stake, as doing so would require a new flotation and listing on the stock exchange."

"RBS has long maintained that it is lending as much as it can to small businesses without taking excessive risks. The bank provided almost half of all new loans to small and medium enterprises last year."

Meanwhile, Citywire reports that amid the nationalisation speculation, shares in the bank are up 1.49% today to 218p, the top riser on the FTSE 100.

 

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