PHILIP Hammond has indicated that the government is facing a multi-billion-pound loss by selling off its 72 per cent stake in Royal Bank of Scotland.
The Chancellor told MPs that “we have to live in the real world”, as he warned that the remaining shares could be sold below the £5.02 average price that was paid for them during 2008 and 2009 when £45bn of taxpayers’ money was pumped into the Edinburgh-based bank during the financial crisis.
Shares in the troubled lender - which has reported nine consecutive annual losses since its rescue by the taxpayer – are now trading at less than half that price at £2.23.
The Chancellor said the government was aiming to return RBS to private hands as soon as possible while achieving “fair value”.
But he said that “fair value could well be below what the previous government paid” at 502p per share.
"Our policy remains to return the bank to private hands as soon as we can achieve fair value for the shares, recognising that fair value could well be below what the previous government paid for them," he said.
"We have to live in the real world and make decisions on the future of our holding in RBS in the best interests of taxpayers."
Mr Hammond's comments come as the government prepares to announce in the coming weeks the final sale of its stake in Lloyds Banking Group, which is now less than two per cent. It is expected to make a profit running into hundreds of millions of pounds.
The government has reduced its stake in Lloyds from 43 per cent, when it invested to prop up the banking group during the financial crisis, and has sold off £12bn of Bradford & Bingley mortgages.
The Lloyds profit would run in contrast to the shares sell-off of lossmaking RBS which was briefly the largest bank in the world with a £2.4tn balance sheet in 2008.
In February, RBS racked up its ninth consecutive year of annual losses, ending 2016, £7 billion in the red and announcing a major cost-cutting drive expected to result in large-scale job losses.
In addition, the European Commission has launched an in-depth probe into Government proposals which aim to spare RBS from being forced to sell off the Williams & Glyn branch network.
The EC warned that the £750m plan that will allow RBS to sidestep the sale could eventually deal a £1.5bn hit to the lender.
Mr Hammond has previously said the Government does not expect to offload its 72 per cent stake in RBS until after 2020.
He added: "We are making real progress in realising our holdings in the banking sector. We continue the programme sale of our shareholding in Lloyds...."
The government began its sale of its shares in RBS in August 2015, offloading 5.4 per cent of its stake, but was criticised for selling shares at a 52-week-low that amounted to a £1.1bn paper loss.
Last month, RBS announced it was axing 158 branches, most of them NatWest outlets, with the loss of up to 362 jobs.
The group, blamed the move on customers spurning the traditional branch counter service in favour of doing their banking on the internet and mobile phones.
The Unite union accused RBS of “turning its back” on communities that had been the foundation of its business for generations, and said the latest cuts were on top of 86 closures announced late last year.
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