NEW YORK (The Deal) --Shares in Royal Bank of Scotland (RBS) rose Thursday after Chancellor of the Exchequer George Osborne, as expected, used a closely watched annual speech Wednesday night to announce the start of the long-awaited selloff of the government's near-80% stake.
The Edinburgh lender was trading up 7.2 pence, or 2%, at 362 pence by mid-afternoon, giving it a market value of close to £42 billion ($65 billion) after Osborne, in his Mansion House speech to City grandees, said the state would begin extricating itself "in the coming months" from a holding it accrued through a £45 billion credit-crisis bailout. The selloff will start with a sale to institutional investors.
In the U.S., RBS was up 1.5% to $11.19, down 7.6% for the year to date.
Osborne has been slowly changing his position from wanting to wait until the state can recoup its investment before selling the shares. In deciding it's time to get out now, he took advice from bankers at Rothschild, who said the market currently looked kindly on bank shares and that starting the state selloff will improve liquidity in the stock, and make the government's remaining shares more marketable.
It may also "bring further benefits to the bank and therefore to the taxpayer as shareholder by beginning the privatization and sending a strong signal that RBS is on the road to recovery," the Treasury said, citing the Rothschild report.
The holding has been a politically uncomfortable one for the government amid rows over executive pay and "conduct" issues at the bank, including transatlantic fines for the rigging of foreign exchange and Libor rates --Royal Bank of Scotland agreed to pay $395 million for forex misdemeanors just last month -- and a U.S. settlement related to subprime mortgages.