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- RBS is going to resume regular dividend payments.
- The bank is going to be stronger and focus on the needs of customer.
- RBS as a private sector will be able to make higher profits, support the economy and pay more tax.
- Free-market forces are still the best means to determine its future structure and therefore its worth.
Britain pumped £45.8bn into RBS to rescue the bank in the 2007/09 financial crisis, leaving the government with a 78% stake that now is worth about £32B and now is planning to sell half of its stake in Royal Bank of Scotland (RBS, Financial), and this means the U.K. will almost certainly take a sizable loss on at least its initial sales. The move has been endorsed by the Bank of England, who warned that delaying the start of the sale could lead the taxpayers to lose even more.
Royal Bank of Scotland  provides banking and financial products and services to personal, commercial and large corporate and institutional customers through its two subsidiaries, The Royal Bank of Scotland and NatWest, as well as through a number of other brands including Citizens, Charter One, Ulster Bank and Coutts.
The aim of this selloff is to repair and return RBS to full health so it will be able to support the UK economy in the future, and the current strategy is working to achieve that. But the RBS chairman said previously that it could take several years for RBS to return to private ownership, given the amount of shares to be sold. But the faster-than-expected sale will raise fears to taxpayers that could lose out to the tune of billions of pounds.
Chancellor George Osborne said: "It's the right thing to do for British businesses and British taxpayers. Yes, we may get a lower price than that was paid for it –Â but we will get the best price possible. For the longer we wait, the higher the price the whole economy will pay. He also said that the RBS sale must be seen as a whole and the share price will increase in subsequent offerings as confidence grows.”
Some believe that George Osborne thinks RBS will do better in the private sector and therefore eventually make higher profits, support the economy and pay more tax.
Although Osborne had been reluctant to sell at a loss, the bank’s improving performance and the increased political leeway afforded by the Conservative Party’s election win in May had persuaded him it was time to sell.
This is the tightest timeframe for the re-privatization of the bank, but now is the time for RBS to rebuild itself as a commercial bank no longer reliant on the state, but serving the working people of Britain; analysts expect the bank to have surplus capital by the end of next year, offering the prospect of a high dividend yield in the longer term.
One of the problems the public has with the bank is that RBS is still making losses and the bank must profit so the government can sell it; if the government will maintain its RBS holding, it might be less able to encourage other forms of lending so the future shape of RBS will be left to the mergers and acquisitions market.
RBS is now working on giving investors confidence that remaining risks in the bank are understood and accounted; it will certainly have an uphill battle convincing politicians that a sale is a good pre-election idea. The bank is making good progress towards its stated 2015 targets, with further steps to build a bank that is stronger, simpler and better for both customers and shareholders. Its total income was £4,331 million, up 12% from Q4 2014. RBS is on track to deliver their targeted £800 million reduction over 2015. Revenue for the first quarter was £4.33bn, 14% lower than the same period in 2014, but 12% higher than the final three months of last year. However, the net interest margin, the difference between RBS’s income from lending and cost of funding, fell to 2.26 percent in the quarter from 2.32 percent in the final three months of 2014.
RBS has benefited from strengthening economies in the U.K. and Ireland, boosting housing demand and had a gain on impairments of 91 million pounds, reflecting “benign credit conditions” after a 362 million-pound bad-debt loss last year.
RBS 's share price is trading at $10.44 and it appears overpriced according to Peter Lynch earnings line which gives it a value of $5.4. Guru Focus gives a profitability and growth ratio of 5/10 since returns of the company are negative and during the last 12 months, five years and 10 years, revenue and book value have been dropping.
Bottom line
CEO Ross McEwan said in a statement. "When the government starts selling its shareholding, it will be selling a bank determined to be the best in the country. Even so UK may get a lower price than Labour paid for it but it’s the right thing to do for British businesses and British taxpayers.”
RBS remains committed to achieving its target of being number one in customer service, trust and advocacy by 2020, as Chief Executive Ross McEwan said the bank's performance was not satisfactory: "I won't be satisfied until we're making money and doing great things for customers."
