UK Government sells off RBS shares for £2.1 billion

The UK government has commenced the sale of its shares in majority state-owned retail bank, the Royal Bank of Scotland (RBS), which was bailed out by the government during the financial crisis in 2008.

HM Treasury and the Chancellor of the Exchequer George Osborne revealed on Tuesday that 5.4% of the government’s stake in RBS has been sold at £3.30 per share, raising £2.1bn that will be used to pay down the national debt.

RBS shares were purchased by the UK government for £45bn in 2008 and 2009. The bank was also supplied with cheap funds.

UK Financial Investments advised the Chancellor on Monday that it would be appropriate to begin the first sale of the government’s shareholding in RBS. Osborne agreed to the share sale, marking the first step in returning RBS to the private sector.

Osborne said: “This is an important first step in returning the bank to private ownership, which is the right thing to do for the taxpayer and for British businesses: it will promote financial stability, lead to a more competitive banking sector, and support the interests of the wider economy.”

CEO of RBS Ross McEwan also stated: “I’m pleased the government has started to sell down its stake. It’s an important moment and reflects the progress we are making to become a stronger, simpler and fairer bank. There is more work to be done but we’re determined to build a bank the country can be proud of.”

According to RBS, its capital position has improved dramatically since 2008. Its loan:deposit ratio is much more sustainable than it was during the crisis and is now at 92% , compared to 154%. The bank’s share price has also appreciated by 330% since its lowest point in January 2009.

However, the share sale is below the price paid by the government and represents a loss to the UK taxpayer of about £1.07bn.

EC issues fines totalling EUR1.7bn to eight banks for rigging financial benchmarks

Banks involved in a financial cartel that colluded to fix crucial benchmark rates have been levied with fines that total EUR1.7bn by the European Commission, it was reported on Wednesday.

These benchmarks included the London interbank offered rate, or Libor, the Tokyo interbank offered rate and the euro area equivalents. The benchmark rates are used to price hundreds of trillions of dollars in assets ranging from mortgages to derivatives.

The rate rigging was described by European Commission vice-president Joaquin Almunia as “appalling examples of misconduct”.

UK bank Royal Bank of Scotland (RBS) is among the banks that had the record breaking fines imposed for fixing yen Libor and Euribor rates. Other organisations involved were Deutsche Bank, which received the biggest fine of EUR725.36m, Societe Generale and broking firm RP Martin, which is said to have facilitated one of the infringements by using its contacts with banks involved in settling Libor. Two US banks, JP Morgan and Citibank, were also involved in the cartel.

Barclays bank escaped being fined EUR690m, as it had voluntarily reported that the cartel was rigging Euribor rates. Swiss bank UBS also avoided a fine of EUR2.5bn for exposing the cartel in yen Libor fixing.

The European Commission said it will continue investigating Credit Agricole, HSBC, JPMorgan and brokerage ICAP for similar offences. Credit Agricole has reportedly refused to settle and is likely to face sanctions in 2014, while HSBC has also contested the penalty proposed by the European Commission.

Financial regulators in the UK and US have already levied fines on financial institutions including UBS, RBS, Barclays, Rabobank and ICAP for attempts to manipulate key interest rates. Also, certain individuals are facing criminal charges.

Sir Philip Hampton, the chairman of RBS, was cited as saying: “Today is another sobering reminder of those past failings and nobody should be in any doubt about how seriously we have taken this issue. The RBS board and new management team condemn the behaviour of the individuals who were involved in these activities. There is no place for it at RBS.”

HM Treasury announces publication of RBS Bad Bank Review

Banking and financial services company RBS Group is determined to become an asset, rather than a burden, to the UK economy, according to a statement released from HM Treasury, in which it announced that the UK government has published a review of the Edinburgh based firm, entitled ‘RBS and the case for a bad bank: the Government’s Review’.

The review was announced by Chancellor George Osborne in June this year and was conducted by the Treasury with expert help from Blackrock Solutions and Rothschild. ‘RBS and the case for a bad bank: the Government’s Review’ advises that RBS should use its skills in effectively managing down its non-core assets, in combination with the RBS plan for setting up an internal bad bank, in order to offer the most efficient route to resolve identified assets. This new strategy should address many of the bank’s challenges and investor concerns, which over time would be reflected in an improved valuation and increase the prospect of an earlier return of RBS ownership to the private sector, according to the review.

RBS also released its latest set of results today and announced that the bank is headed in a new direction, which it expects to result in being of benefit to the UK economy, instead of a liability. The company said that a bad bank will be created to separate and wind down its poorly-performing and high-risk assets and stated that it aims remove between 55% and 70% of these assets over the next two years. This will be an ‘internal’ bad bank funded by RBS itself, rather than being publicly funded.

According to HM Treasury, the Bank of England has confirmed that the taxpayers’ contingent exposure to the banking system has been reduced by a further GBP8bn with the removal of the Contingent Capital Facility one year early.The Treasury and RBS are now in advanced negotiations with the European Commission as to when the Dividend Access Share (DAS) is retired, which should also make RBS shares more attractive to external investors.

The Chancellor stated:

“The new direction for RBS is supported wholeheartedly by the management and Board of RBS, the Bank of England, the Government and UK Financial Investments (UKFI). The authorities look forward to supporting Ross McEwan and his team in implementing this plan.

“It means less exposure for the British taxpayer and more help for the British economy. That is why it’s good for Britain.”


The Libor Scandal: RBS facing fine of £390m

The Royal Bank of Scotland has been in the spotlight this month, after a fine was issued for the bank’s role in the Libor rate-fixing scandal.

The London inter-bank lending rate, or Libor, is one of the most important interest rates in the world of finance. It dictates the average rate at which London-based banks lend money to each other. It supports financial contracts and loans of up to trillions of pounds.

In 2005, it was banking giant Barclays that came under fire after evidence was uncovered that proved the bank had attempted to manipulate the Libor dollar rates, following requests to do so from other banks.

Representatives and employees of the large banks talked over the phone and on instant messaging programs, nudging each other in an often jocular fashion to change the lending rates accordingly.

Following the recession in 2007 and the liquidation of Northern Rock, Barclays further manipulated Libor to make it look as though the bank’s credit quality was in a much better state than it was.

The Royal Bank of Scotland (or RBS), while not to the same level as Barclays, continued to manipulate their Libor. In 2011, four employees were sacked for their roles in the scandal.

According to the BBC, RBS has been fined a total of £390 million for its Libor-fixing activities.

It is expected that the fines will not be recovered from tax payer’s money, despite the fact that RBS is 81% owned by the tax payer. The £300 million now owed to US authorities thanks to the fine will be recovered from previous bankers’ bonuses and their future bonuses.

RBS has admitted that its own internal investigations led to 21 employees receiving disciplinary action or facing firing.

Thanks to the agreement of RBS to settle at an early point in the investigation into the Libor rate fixing, the bank was granted a 30% discount on part of the total fine.

A spokesman from spread betting and Forex trading experts City Index said of the scandal: “The Libor scandal has been a hindrance on the sector and RBS especially considering how long the firm has been in negotiations with regulators over a fine settlement.

“The fact that they have now reached an agreement is a double positive for shareholders in that it draws a line under the situation and the fact that the fine is less than expected.”

The RBS fine follows a huge government bailout in 2008, when RBS was on the very verge of collapse.

RBS offloads consumer loans to financial services firm Paragon

British first mortgage and consumer finance firm Paragon Group Of Companies Plc (LON:PAG) said on Monday it had paid GBP25,000 (USD40,000/EUR31,000) to buy a portfolio of unsecured consumer loans from The Royal Bank of Scotland Plc (LON:RBS).

The transaction was conducted through Paragon’s unit Idem Capital Securities under a forward flow agreement and is seen to build on its earnings this financial year.

Paragon said it would use own cash reserves to finance the deal. The company will remain on the lookout for further buy opportunities under the forward flow accord going forward.

In October 2011, Paragon bought GBP43.2m worth of unsecured consumer loans from the UK lender and later announced several similar portfolio purchases.

Paragon, based in Solihull, engages in first mortgage and consumer finance businesses in the UK. The company offers buy-to-let and owner-occupied mortgage assets, asset investment and administration, vehicle fleet management, unsecured lending, property services, mortgage brokering, loan and vehicle finance and surveyors and property consulting.

Last month, the company bought a domestic consumer credit card receivables portfolio from MBNA Europe Bank Limited for up to GBP16.9m. The deal was preceded by a GBP55.7m acquisition of closed UK consumer credit card receivables from the bank in December.

Private equity firms in talks to acquire RBS’ Direct Line

Royal Bank of Scotland Group Plc (LON:RBS) may not get to list its unit Direct Line Insurance Plc as two consortia made up of leading private equity groups prepare to make a move on the business, the Sunday Times reported citing City sources.

RBS has been instructed by European Union regulators to sell Direct Line as compensation for its state-sponsored rescue in 2008. The UK lender is planning to float 30% of the business in September and has lined up 11 investment banks to assist with the process, with Goldman Sachs Group Inc (NYSE:GS), Morgan Stanley (NYSE:MS) and UBS AG (NYSE:UBS) assigned leading roles in the undertaking.

RBS is expected to file the required documents with the London Stock Exchange next month, the newspaper added.

However, the two private equity consortia are preparing to make their move at the end of July, potentially thwarting RBS’ plans. One of the groups comprises US private equity giants Blackstone Group LP (NYSE:BX) and Bain Capital LLC, while the rival bidding combo is made up of KKR & Co LP (NYSE:KKR) and UK-based Apax Partners Holdings Ltd and BC Partners Limited, the Sunday Times was told.

Direct Line, the company behind brands such as Churchill and Green Flag, is the number one UK car insurer in terms of policy numbers and the top home insurance provider, the article went on to add.

It has long been coveted by rival sector players and private equity groups although RBS’ attempt to offload the business in 2008 proved unsuccessful as bidders failed to match the asking price of GBP7bn (USD10.9bn/EUR8.9bn).

BC Partners also featured among the bidders then, joining forces with Apollo Global Management LLC (NYSE:APO). The auction also attracted US billionaire investor Warren Buffett and a consortium made up of CVC Capital Partners Limited and insurance group Swiss Re (PINK:SSREY).

Direct Line’s valuation has shrunk significantly since then although the company reversed its heavy 2010 losses to exit last year with profits of GBP454m, the Sunday Times said.

Insurers fined for file tampering

RBS owned insurance companies Direct Line and Churchill has been fined for tampering with files.

The files in question are customer compaint files which had been submitted to the Financial Services Authority (FSA).

They have been fined £2.17m, however the FSA have said the changes were small and would not effect customers.

The action is a major breach in rules. 

Tracey McDermott of the FSA said: “The firms failed to give clear instructions resulting in staff making inappropriate alterations with one individual even forging the signatures of colleagues.

“The firms’ management did not know what changes had been made or when [but] it is of critical importance that material provided to the FSA must reflect the picture as it is – not as they might like it to be,” she added.

The tampering occurred when insurers tried to sort out the FSA’s continuing enquires, which began three years ago, looking into the approach taken by financial firms when dealing with customer complaints.

Only a year ago RBS itself was fined for inadequately dealing with customer complaints, to the sum of £2.8m.

Direct Line and Churchill both looked into closed complaints and staff were told the complaints must pass.

When the FSA received their sample 50 files in April last year it was told that some may have been altered or “created”.

Further investigation revealed 27 out of 50 had been altered, with seven containing forged signatures.

“In this case, the alterations did not impact on the FSA’s ability to do our job,” the FSA said.