RBS shares rise on news of sell-off as ABN Amro dealmaker readies his return

The value of Royal Bank of Scotland shares rose by up to £900 million yesterday on the back of Chancellor George Osborne’s announcement that the UK Government is to start selling off the taxpayer’s stake in the Edinburgh-based lender.

RBS shares climbed by almost two per cent on the news and analysts said there would be significant interest from institutional investors willing to overlook the continuing drag from misconduct liabilities and uncertainties over the EU referendum.

Meanwhile, a banker who worked on RBS’s ill-fated takeover of Dutch bank ABN Amro immediately prior to the collapse of now 80 per cent state-owned RBS is set to return to advise on the Government sell-off.

According to The Financial Times, Jim O’Neil is set to be announced as RBS’s corporate broker and privatisation adviser later this month.

He previously ran UK Financial Investments, which manages the Government’s banking stakes following the financial crisis.

He joined Bank of America Merrill Lynch last year as global head of financial institutions.

In his Mansion House speech earlier this week, Chancellor George Osborne said the sale of the Government’s 80 per cent stake in RBS will begin in the coming months.

Shares were up 6.7p to 361.5p on the announcement, and commenting on Mr Osborne’s address, Joe Dickerson, analyst at Jefferies, the New York-based investment bank, said there was appetite among investors for the shares.

He said: “I would say demand is high from large institutions in the US, the UK and Europe. It’s a very attractive risk/reward pay-off with potential excess capital down the road.”

But some analysts have warned the sale represents a challenge as RBS has reported seven years of losses since it was bailed out, and Investec said it forecasts only “moderate share price appreciation” in the short-term, due to investors deciding to “keep their powder dry” ahead of the promised institutional share offering.

To break even on RBS, the Government needs the share price to rise some 20 per cent above current levels.

According to the Chancellor, shares will initially be drip-fed to institutional investors, while any retail offer will need to avoid a timing clash with the Lloyds public sale which analysts say may have to wait until around March next year.

Analysts said institutions, particularly in the US, would see the bank as a play on the UK’s economic recovery and be attracted by RBS’s modest valuation – it is currently trading at a 20 per cent discount to its asset value, or 0.8 times assets compared with 1.3 times at Lloyds.