Monday, 10 June 2013
RBS/Lloyds need a simpler solution
However, the real issue has centred for a long-time around the shareprice. I was all in favour last year of the concept of giving away the shares to the public and a think tank has come out today with the same idea. The idea still has much merit in that it is after all our money the Government has used. it is a good counter-point to the socialists who use our money for their gain, for the Conservatives to present back to the public their own investment - at a loss incurred by the socialists too.
there is though a better idea. The Government does not need to make a loss at all. All they need to do is instruct the bank, soon to be making profits once more, to engage in share buyback processes. This way, by cancelling shares, the price of the shares will rise. At some point in the not too far future they will be above the strike price and every further purchase will be a profit for the taxpayer or alternatively a real Sovereign Wealth Fund buyer can be found.
This way too the shareholders, mainly pension funds and retail investors, will see some return for their investment. RBS is currently valued at £37 billion, if it can clear £2 billion a year profits, which is entirely possible for this year, then that is 6% of equity bought back. The price will go up considerably over time and at little cost and with no expensive IPO or share hand-out process. Lloyds would be largely in the same bracket.
Share buybacks - the simple solution to a difficult problem. There is still the idea of break-up, but this is just silly and I will come back to later in the week.