How to succeed in selling down NatWest

For those of us of a certain age Natwest Bank is synonymous with little pigs. As a young saver taking my savings passbook to be updated, I recall the excitement over whether I qualified for one of the porcelain pigs that Natwest once gifted to its savers. Writing this feels like channelling a memory from a bygone era. Over the last three decades porcelain pigs have given way to packaged accounts full of mobile phone insurance, and cash incentives. But the memory lives on. At least for some of us. As M&C Saatchi – the advertising group – begin their work on promoting the upcoming sale of the government’s stake in Natwest it may seek to tap into such wistful recollections. While such emotional touch points may have a role in successful advertising, the government has a hatful of other issues to address to avoid the sale of Natwest shares becoming a pig in its own right.        

Sixteen years on from the Global Financial Crisis, the UK government remains the biggest shareholder in Natwest Bank. Taxpayers still own 35% of its shares. This stake is worth £6.6bn. It is the legacy of the £46bn bailout of Royal Bank of Scotland (RBS) in 2008 at the height of the crisis. Having held on to a significant shareholding hoping to recoup the full value of taxpayer input, the sale later this year will crystalise a total loss recently estimated by the Office for Budget Responsibility at £32bn. Despite this loss – which successive governments have tried to minimise – returning a retail bank to private ownership is almost certainly the right strategic decision.

In delaying the selldown in the forlorn hope of recovering losses, successive governments have delayed the chance to return the bank to full private ownership – as was the approach taken by US authorities post crisis when rescued institutions were sold back to private ownership as soon as practicable. Furthermore, the government clearly has enough on its plate without steering a retail bank through the disruption of ongoing technological and regulatory upheaval. Natwest needs the freedom to compete and innovate outside the irregular constraints of public ownership. Such constraints were bought into sharp relief by recent gaffes from its former CEO, Alison Rose, and current Chairman, Howard Davies. These have drawn Treasury ministers into the spicy arena of corporate governance where they inevitably face a range of conflicting priorities.  

As part of exiting taxpayer ownership the Chancellor, Jeremy Hunt, revealed last November that a retail sale of Natwest shares – one available to individuals and not just investment institutions – would be forthcoming in 2024. This will be part of an ongoing focus on re-energising the flagging UK stock market. This is a focus shared by the opposition Labour Party. Subject to stock market conditions this sale could come as early as June.

There will be nervousness in government on how this sale may evolve, and the risks it entails. Smart design should mitigate these risks, albeit it will be impossible to eliminate them entirely. Investing entails risk. Any profit, to either taxpayers or those participating in the sale, is the reward for taking part.

The first concern for Ministers will be the performance of Natwest shares after the sale is complete. If they rise rapidly in value there will be plenty of commentators ready to blame the government for selling off the taxpayer stake too cheaply. The Royal Mail flotation in 2013 caused the then business secretary, Vince Cable, to receive a barrage of criticism for short-changing taxpayers. Equally if the government’s advisers seek to mitigate this by pricing Natwest shares too high, investors may face considerable paper losses. This would further undermine efforts to boost enthusiasm for share ownership in the UK. These two-sided risks make for a delicate balance to strike. Locking in certain investors for a period before they can sell, as well as placing some stock with long term holders may reduce some of these risks, but nothing can be assured.

The second concern is that a Natwest sale it may be seen by investors as the wrong asset at the wrong time. The enthusiasm for British Gas shares in the “Tell Sid” campaign of 1986 was underpinned by the attraction of owning a monopoly utility with – at the time – guaranteed market share. Natwest has come a long way from its near-death experience whilst branded as RBS, but it continues to operate in a highly competitive banking market with financial technology and new entrants chipping away at its market share. Investors the world over are currently piling into US AI-exposed technology stocks, rather than more traditional business models. The last thing the government will want is for the underwriting banks to offload large quantities of unsold shares to hedge funds and introduce high volatility in Natwest stock.

The third concern is whether direct, and individual share ownership is something the government should be encouraging through the Natwest sale. Indirectly, the UK public have become increasing owners of shares through autoenrollment into workplace pensions. This big policy success over the last decade has enabled workers to get a broad portfolio of exposure as their pension schemes diversify across a range of equity, and non-equity assets. Given none of us have perfect foresight on what happens next for individual firms or industries, this may be the responsible approach to sharing the proceeds of capitalism. A silent revolution like rising workplace pension membership does not fit neatly into an Instagram campaign, or a glossy election video – but arguably this policy has done more than anything else in to promote the link between stock markets and citizens.       

These concerns are not a barrier to a sale of Natwest shares, but they do suggest that handling is key. Reputations are on the line for government ministers as custodians of taxpayer’s money, and in the City as a place to execute deals that provide a stable cost of capital for UK companies. Giving retail investors a positive experience is a narrow tightrope to walk. This little piggy is coming to market. Time will tell whether it makes it all the way home.

Published on The Times 12/02/2024