Retail offerings of government-owned shares are a rare event in the post-privatization era. It is therefore unsurprising that uproar is growing over what is being described as a ‘Tell Sid’ bid – a throwback to the liquidation of British Gas in 1986 – for the government’s 35 per cent stake in NatWest.
The holding company is a legacy of the government bailout during the great financial crisis of 2008, when the bank’s cash-dispensing machines nearly ran out.
Preparations for a sale in 2024, including an offer to private investors, are underway and, barring stock market volatility, the biggest sale of government shares since the privatization of Royal Mail a decade ago could be launched in late spring or early summer.
At NatWest’s headquarters in Edinburgh and at Bishopsgate in the City, material is being gathered for a prospectus. Goldman Sachs, which represents UK Government Investments, is on alert and is looking for an agency to lead a marketing campaign aimed at citizen investors. Private investors are expected to be attracted by discounts on the offer price or bonuses for those who hold onto their shares, or a combination of both.
As exciting as all this may seem to a long-standing investor in NatWest (in its former form as Royal Bank of Scotland), my advice would be to stay away.
Flashback: The ‘Tell Sid’ adverts from the British Gas liquidation of 1986. Left: Fred Goodwin, former head of RBS
As city editor, my self-imposed rule is to hold stocks and never trade. As much as one is interested in investing in Britain for the long term, my loyalty to NatWest has been an absolute financial disaster. My original investment has been decimated over time by serial mismanagement.
Equally worrying is that, as a customer for over half a century at one of NatWest’s constituent banks, service levels have been devastated. Branches have disappeared and will continue to disappear. Basic financial services have been abolished, from stock brokerage to document custody. In the desperate effort to cut costs, increase profits and free itself from government control, the bank’s raison d’être is barely discernible.
I will always remember my very different first meeting with our family’s local manager at the Brighton branch of the District Bank, which as a result of a series of mergers became part of National Westminster. Before I went to university, my father, a farmer with a retail business in Hove, accompanied me to the bank to open my first account.
We were ushered into the manager’s office and greeted with a cup of tea and a bourbon cookie. The forms were completed, a standing order for a regular assignment for my father Michael was created, and the account was opened. The basics of writing checks and trying to maintain credit were explained.
It was the beginning of a personal relationship that helped me get through many life events: a joint account after marriage, working abroad for a decade and returning to London to face a horrendous mortgage rate (more than 14 per cent) and school fees for three years. children. There were overdrafts and tensions, but successive managers, first in Brighton and then in Putney, south-west London, helped me overcome my personal traumas.
In a parallel life in financial journalism I met Fred Goodwin, the entrepreneurial chief executive who led NatWest’s parent company, the Royal Bank of Scotland, down the road to ruin. Goodwin embarked on a series of mergers in the United States and around the world that culminated in the disastrous £49 billion takeover of Dutch-Belgian financial group ABN Amro – the biggest banking deal of all time – in October. of 2007.
By then, the earthquake, stemming from failed U.S. subprime mortgages, should have heightened the warnings. US investment bank Bear Stearns had been bailed out by JP Morgan and Northern Rock bailed out by the Bank of England after an embarrassing public run on the bank. Goodwin pressed on, despite a calamitous fall in RBS-NatWest’s share price.
By spring 2008 the scale of the misjudgment was evident and the City regulator required Fred Goodwin to raise the bank’s capital with an unprecedented rights issue to existing shareholders to raise £12bn. I remember a routine visit to Prudential, then one of the City’s biggest investors, with a 3 per cent stake in most FTSE 100 companies.
The investment chief gleefully recalled how Goodwin, who had never bothered before, had personally responded to a call to persuade the Pru to buy the rights issue to back the shares. As an existing investor, I decided to subscribe thinking that the discounted shares were so cheap that nothing could go wrong.
Example: Alex Brummer’s father Michael helped open an account.
That summer I was invited to a pigeon salad lunch (I had the vegetarian alternative) at the Bank’s headquarters in Bishopsgate. Goodwin was still cheerfully confident of overcoming the impending crisis and he told me that when he was in London, he stayed in a suite at the Savoy Hotel, where the efficient valet service made sure his clothes were clean and ironed. Any suggestion that RBS was in difficulty was dismissed.
As the financial crisis gained momentum in 2008, RBS shares plunged 87 percent. On the morning of October 7, as Goodwin gave an optimistic presentation about the bank’s bright future, the stock sank another 35 percent. Hedge funds had smelled blood.
Panicked chairman Tom McKillop called chancellor Alistair Darling and the Bank of England covertly made tens of billions of pounds available. As of December 2009, the government owned 49 percent of the bank, which continued to generate losses over the next decade.
A ruthless reduction of the balance sheet and, after several chief executives, you are expected to believe that NatWest has turned the corner. Maybe, but it has the unpleasant habit of slipping on the banana skin. This was the case last year when chief executive Dame Alison Rose was forced to resign by the board, following government intervention, when she had provided personal details about Brexit veteran Nigel Farage’s banking dealings with the subsidiary exclusive to Coutts private bank.
NatWest is once again in new hands under the able leadership of interim chief executive Paul Thwaite and incoming chairman Rick Haythornthwaite. We are confident that with firm hands on the helm, the future looks bright. An era of higher interest rates has improved returns. But can anyone be sure that a bank with such a dismal history will ever be a good investment?
As a client and shareholder I have been a double loser. My shares are worth a fraction of the value at the time of the calamitous 2008 rights issue and subsequent near-collapse. But I am equally dismayed by the closure of my local branch, the end of services such as escrow, the replacement of face-to-face contact with a poorly programmed online advice service known as Cora.
It’s not good enough. I have long believed that the government should have sold its stake in NatWest, albeit at a loss, many years ago. But the idea of buying a new retail offering seems abhorrent to me.
Haven’t all of NatWest’s private shareholders suffered enough already?
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