NatWest to cut UK government stake with $ 1.5 billion buyout
LONDON (Reuters) – NatWest to buy back 1.1 billion pounds ($ 1.5 billion) of its shares from the UK government, pushing the state-backed lender into private hands as the government struggles to sell off entirely banks bailed out by the financial crisis.
The sale crystallizes an additional loss of around £ 1.8 billion for the government on its £ 45 billion bailout from NatWest. The Office for Budget Responsibility predicted in March that the government would suffer an overall loss of around £ 39 billion on the bailout once the financial costs are factored in.
NatWest, formerly Royal Bank of Scotland, will be 59.8% government-owned after the deal, up from 62% previously. The deal price was yesterday’s closing share price at 190.5 pence, well below the bailout level of 502 pence.
“We believe this is a good use of capital for the bank and our shareholders,” NatWest CEO Alison Rose said on Friday.
The government’s two previous sales of part of its stake in NatWest, in August 2015 and June 2018, were larger market placements involving private investors.
NatWest has long argued that the bailout deal was necessary to stabilize the UK financial system during the 2007-09 crisis, and that it was unrealistic for the government to expect a profit to be made.
The bank is limited to buying about 5% of its shares per year from the government. The deal uses up to 4.86% of that allocation, virtually ruling out new purchases until next March at the earliest without a rule change at an investor meeting.
NatWest shares gained more than 2% at the start of the session and rose almost 1% for the last time, against a decline of more than 2% of the FTSE 350 bank index.
“NOT TOWARDS FREEDOM”
The government said this month that it is targeting the bank’s return to full private ownership in 2026, a year later than expected.
Britain’s Finance Ministry said the deal “represents an important step” in the government’s plan to put bailed out banks back into private hands.
NatWest remained majority state-owned even as other lenders rescued from the financial crisis were privatized, with the last piece of defaulting lenders Northern Rock and Bradford & Bingley being sold last month.
Rival Lloyds was fully privatized in 2017.
NatWest had built up capital to buy back government shares and speed up the sale process, with the central bank’s restrictions on dividend payments giving it more leeway.
NatWest’s core capital ratio will drop from 18.5% to 17.7% as a result of the deal and a £ 500million contribution to its main pension scheme.
Investec analyst Ian Gordon said the deal was “another small step on the road to freedom” for the bank.
Deal comes days after it emerged, NatWest faces money laundering charges and the risk of an unlimited fine for allegations it failed to detect suspicious activity from a client depositing millions of pounds of money.
($ 1 = 0.7184 pounds)
Reporting by Tom Wilson and Iain Withers; Editing by Rachel Armstrong, Alexander Smith and Pravin Char