The government’s plan to sell shares in NatWest to the general public is so advanced that the odds on the chancellor pulling the plug on a pet project are slim. Investment bankers from Barclays and Goldman Sachs are doing their well-remunerated stuff, and M&C Saatchi is knocking up some adverts. The go-ahead for a rah-rah pre-election retail share offer is expected any week now.
In a rational world, though, Jeremy Hunt would call the whole thing off. He already has a tried-and-tested method for disposing of the state’s NatWest shares and – this is the point – it is working splendidly.
Look at the pace at which the Treasury in recent months has been able to shift shares in the former Royal Bank of Scotland, 84% nationalised in 2008, by simply selling them on the stock market. At the end of the last year, the government’s stake was 38%. It dipped below 30% in March, allowing the Treasury to crow about no longer being considered a “controlling shareholder”. This week the holding, worth £7.66bn, went just under 27%. An 11% stake has been sold in just five months.
It has happened quietly because that’s how the NatWest “trading plan”, adopted in 2021, is meant to operate. Shares are dribbled into the market with the aim of not disturbing the underlying price and thereby getting full value for the public purse on the day. Amid the general stock market rally this year, conditions have been near perfect. The Treasury has been selling at ever-higher prices and NatWest’s shares have improved from 218p at new year to 326p.
Why mess with this winning formula? In a retail offer, brokers suggest a 10% discount would be needed to entice punters, probably in the form of loyalty bonus for those who keep their shares a year. So, if the offer were as large as £3bn, which seems to be the ambition, the Treasury could be giving away £300m of value versus the market price at the time. That is not small change.
Here’s the Treasury’s rationale from March: “A retail sale could not only help achieve the goal of exiting the NatWest shareholding, but also help support wider government priorities on our ambitious financial services agenda, including promoting retail investing and the UK’s capital markets.”
On the first goal – getting the state rid of NatWest altogether – it is obviously true that flogging a big slug of shares in one go would speed things up. But the government’s deadline for a full exit is spring 2026 and the trading plan, involving no discounts, looks capable of delivering ahead of time. That’s even before one counts “directed buy-backs” in which the government sells shares to NatWest itself. The bank, flush with capital these days, said last month it has capacity to buy a 5% stake this year.
So we’re down to the “wider government priorities”, meaning the idea that a sale to the public would do wonders for share ownership in the UK. Would it, though?
Unlike the privatisations of the 1980s and 1990s, anyone can buy shares in NatWest today. The main reason to participate in a retail offer would be because the government is selling below market price to people able to write a cheque for a couple of grand at short notice. That is not a pure message about the virtues of long-term investing. Hunt would do better to shout about his new British Isa, the success of auto-enrolment and so on. Or tell the City to give retail investors access to stock market flotations. Or, to make a proper splash, cut stamp duty on share purchases.
At the time of the 2023 autumn statement, when Hunt first mentioned a retail offer, there was a stronger case for it. NatWest’s shares were becalmed and outside investors were fretting about the bank’s relations with government after the Coutts/Nigel Farage fiasco. The Treasury’s 39% stake at the time was acting as a drag. A retail offer had some merit as a way to reset the mood.
But today’s picture is different. NatWest has a new chairman and chief executive and the shares stand at their highest level since 2015. The surest sign the market is regarding NatWest as a “normal” bank is that its valuation is well above reported net asset value. Now that the state’s stake is falling fast in orderly fashion, the dynamic has changed.
NatWest/RBS was nationalised on behalf of all of us. We reconciled ourselves long ago to the fact that the 502p “in” price from 2008 was over the horizon. But the duty to maximise value at disposal, which Hunt sometimes remembers to mention, should mean something. There is no need for a flashy retail offer in which public money slips between the cracks. Stick to the trading plan.
