Government could start RBS stake sale at a loss next year

State-backed Royal Bank of Scotland said the British Government might have to take a hit when it starts selling its stake in the bank, which could happen as early as next year.

Britain pumped £45.5 billion into RBS to keep it afloat during the 2008 financial crisis, leaving it with an 82 per cent stake. British taxpayers are currently sitting on a paper loss of £18.5 billion.

The bank’s chairman Philip Hampton said the aim was to have a business that was performing well so the bank could start preparing a prospectus with the Government for a sale from the middle of 2014.

“It could be earlier, that’s a matter for the Government,” Hampton said on the bank’s website.

Britain is keen to sell out of RBS, which reported its first quarterly profit in 18 months yesterday but the Government is under pressure to get a good deal for taxpayers.

Rival Lloyds Banking Group, 39 per cent state-owned after a bailout in the crisis, could prove a more attractive business to sell. Lloyds reported a big jump in first quarter profits on Tuesday, pushing its shares close to a price where the Government could break even it if sold out.

RBS chief executive Stephen Hester said the Government might have to take a loss initially when it starts selling, given the depressed state of bank shares and tougher regulations. But he expected the UK taxpayer to make a profit in the long run.

“There may well be a cogent case for starting at a lower price but I believe the average (sale) price can, and should, be above the Government purchase price,” Hester told reporters.

Hester said he had not held any explicit talks about a sale with the Government. “Privatisation would be a terrific thing for the country and for RBS, but it’s very much a decision for the Treasury,” he said.

Hester has overseen the shedding of around £900 billion in assets at RBS and is focusing on lending to British households and small businesses.

“We expect to substantially complete the bank’s restructuring phase during 2014,” he said.

RBS made a pre-tax profit of £826 million in the first quarter, compared with a loss of £1.5 billion in the same period last year.

Operating profit in the markets division was £278 million, down 66 per cent from a year ago. The unit’s assets were down 23 per cent from a year before and it had 2,000 fewer staff.

RBS said it expected operating costs to be below the analyst consensus expectation of £13.2 billion this year and expected cost cuts in 2014 and 2015.

Hester still has major hurdles to overcome.

RBS’s investment bank’s income fell short of expectations and it said it expected a “muted” year as it cuts back on risk and shrinks the business to focus on fixed income products.

The bank, which has to sell 315 UK branches to meet demands from European regulators, said it was working towards listing them on the stock market.

RBS also said it was open to other options and was having talks with potential investors. It expects to rebrand the business as Williams & Glyn’s.