NatWest Moves Closer to Full Private Ownership
In a significant development, the government has announced the sale of approximately £1.26 billion worth of shares in NatWest, bringing the bank one step closer to being returned to full private ownership. The shares were repurchased by NatWest through a Directed Buyback, marking a major milestone in the ongoing process.
This latest sale is part of the government’s efforts to reduce its stake in NatWest, formerly known as the Royal Bank of Scotland (RBS). The government’s shareholding has now been reduced to around 38.6%, down from its peak of approximately 84%. The successful sale demonstrates substantial progress in line with the government’s commitment, as outlined during the Spring Budget, to fully exit its shareholding by 2025-2026. However, the final decision will be subject to market conditions and ensuring value for taxpayers.
The Economic Secretary to the Treasury, Andrew Griffith, expressed his satisfaction with the sale, stating, “Today’s sale is another major milestone in returning NatWest to full private ownership as promised. The government has now sold well over half of its shareholding.” The government’s intervention in NatWest during the 2008 global financial crisis was aimed at safeguarding financial and economic stability, with the Office for Budget Responsibility acknowledging the impact of these interventions in mitigating the crisis’s cost.
The government remains committed to selling its remaining shareholding in NatWest when it is deemed to offer value for money and market conditions are favorable. As part of the ongoing trading plan, both HM Treasury and UK Government Investments are actively considering various options for future sales, including accelerated bookbuilds, provided the conditions are conducive.
It is worth noting that this transaction represents the sixth block sale of NatWest shares since the government’s initial intervention in 2008. Each sale has contributed to reducing the government’s stake and facilitating the bank’s journey back to private ownership.
Following the completion of this sale, the government’s shareholding in NatWest now stands at approximately 38.6%, a reduction from around 41.4% prior to the transaction. It is important to highlight that the decrease in the government’s shareholding is slightly less than the 4.95% of shares sold, as NatWest will cancel most of the repurchased shares, while the remaining portion will be held in treasury.
As the process continues, the government remains committed to ensuring that the sale of its shareholding provides value for money and reflects the best interests of taxpayers. Market conditions will play a crucial role in determining the optimal timing for the government’s complete exit from NatWest.
For more detailed information on this transaction, please refer to the announcement by UK Government Investments.
The sale of NatWest shares marks a significant step forward in the bank’s journey back to private ownership, and it signifies the government’s commitment to a stable and thriving financial sector. As the process unfolds, stakeholders will be eagerly observing further developments to gauge the future trajectory of NatWest.
Balance Sheet Interventions: Assessing Costs and Impacts
Introduction: In the wake of the financial crisis and the COVID-19 pandemic, governments around the world have implemented major balance sheet interventions to stabilize economies and mitigate the adverse effects of these crises. In this blog post, we will delve into the key findings of the Economic and Fiscal Outlook reports (EFOs) regarding the direct costs and impacts associated with these interventions. We will explore both the financial crisis balance sheet interventions and the pandemic-related balance sheet interventions to gain insights into their current status and implications.
Financial Crisis Balance Sheet Interventions:
During the financial crisis, the UK government undertook significant interventions in the financial sector, including providing support to banks and acquiring shares in NatWest Group (previously RBS Group). According to the latest EFO update, the Treasury disbursed £136.7 billion during and after the crisis. By January 2023, the principal repayments and fees received amounted to £138.7 billion, resulting in a small net cash surplus of £2.0 billion. Additionally, if the remaining shares were sold at the current value, an overall cash surplus of £15.6 billion would be realized. However, when considering the financing costs associated with these interventions, primarily through gilts, the additional debt interest costs amounted to £48.8 billion by January. Therefore, the overall net cost to the government was £33.2 billion (2.1% of 2008-09 GDP).
Pandemic-Related Balance Sheet Interventions:
The policy response to the COVID-19 pandemic involved extensive use of the public sector balance sheet, primarily in the form of loan guarantees. The EFO provides an update on the financial position of various pandemic-related interventions. The maximum size reached by these schemes, including the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS), and others, was estimated at £143.2 billion. As of the most recent data available, the gross contingent or actual liability associated with these schemes amounted to £137.3 billion. The expected write-offs over the lifetime of the schemes totaled £16.2 billion, with the BBLS accounting for a significant portion. Cash outlays to date amounted to £6.5 billion, while cash received stood at £1.1 billion. The net cash outlays as of February 2023 were in deficit, reaching £5.5 billion.
Future Fund and Start-up Enterprises:
One notable intervention during the pandemic was the issuance of convertible loans through the Future Fund to innovative start-up enterprises. As of end-September 2022, a portion of these loans had been converted to equity stakes, with the government becoming a partial owner of various entities. The eventual cost or benefit of this scheme will depend on loan repayments and the ability to sell equity stakes to the private sector. Given the high-risk nature of investments in start-ups, it is expected that some equity stakes will be lost, while others may prove valuable.
The EFO reports shed light on the costs and impacts of major balance sheet interventions undertaken during the financial crisis and the COVID-19 pandemic. While the financial crisis interventions resulted in a net cost to the government, the pandemic-related interventions are still ongoing, and the full extent of their costs is yet to be realized. These interventions played a crucial role in mitigating the economic impact of the crises, and their ultimate effectiveness will be determined by factors such as loan repayments, equity stake sales, and overall economic recovery. Monitoring and evaluating these interventions provide valuable insights into the financial landscape and contribute to informed decision-making for future crises.