by Dan McCurry
George Osborne is desperate to have some kind of legacy that he can tell his grandchildren about. Selling the state-owned banks would be that legacy. The only problem is that universal advice tells him that now is not the time.
Stephen Hester had earned great praise for his achievements as boss of RBS, with investors such as Fidelity’s £2.5billion fund manager Sanjeev Shah describing him as “doing a fantastic job.” But look at the reaction from the brokers since Hester announced his departure.
The manner of Mr Hester’s departure is deeply unsatisfactory. Since 2008, government inconsistency and mismanagement have hurt shareholder value and, as 81% shareholder, it reaps what it sows.
Mr Hester’s departure was clearly against his wishes and it appears that Mr Osborne had different ideas as to how the bank should be run. The political wrangling has significantly impacted the franchise.
The Economist magazine:
[Osborne] shoved out RBS’s boss Stephen Hester, prompting a sharp fall in the bank’s shares. …It is politics not economics that underpins the government’s decision to privatise the banks.
The share price was 334p on 11th June and is now 275p (27/6/13) and continuing to fall against a rising market. That’s an 18% fall so far. Placed in context, that is roughly a £20 billion loss to the British taxpayer in the space of a couple of weeks. (see footnote)
You might recall Osborne sneering at Gordon Brown for selling off the state gold before it rose in value, but the difference is that the gold price did not change price due to Gordon Brown, nor was Brown acting against universal expert advice in making that sale. Brown did not act politically, nor did Osborne accuse him of acting politically. Gordon Brown made that sale for purely economic reasons.
The arrogance of Osborne is that he used the consequent rise in the gold price to accuse Brown of not understanding business, not understanding the market. So what does that say about Osborne now? Is he a lone genius, or is he ignorant, arrogant, and a liability to the treasure of the British state?
The problem these banks have is that they are undercapitalised. That’s why the two state owned banks have reduced lending by £10b over the last year, while Barclays and Nationwide have increased lending. Privatisation won’t increase their capital base, as the proceeds of the share offering will go to the Treasury, not the companies. They’ll be just as undercapitalised after the float as before.
If George Osborne was a company director floating stock before the company was ready, in order to “feather his own nest” (where the word “nest” represents his reputation), then this would be illegal, because it is the fiduciary duties of the board to ensure that policy is for “proper purpose”, which this is clearly not.
However, Osborne is not acting as a company director. He is an elected politician and can sell our shares in these banks in an incompetent manner, without fear of the long arm of the law.
He is not acting in our interests, nor is he acting in the interests of the Conservative Party, nor of the Cameron government. He is feathering his own nest and nobody else’s, and the price that we will pay for this political vanity will not just be the be the tens of billions in the fire sale, but also the years of sluggish growth, due to the job not being done right.
(footnote: £20b figure is based on stock market capitalisation x 4, to calculate govt owned share, x 20% to calculate the loss resulting from the price fall)
Dan McCurry is a Labour activist who blogs here