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RBS could buy back its own shares from the government

Article By: ,  Financial Analyst
September 30, 2015 6:36 PM

Royal Bank of Scotland (RBS) could buy back its own shares in order to help the government offload its 73 per cent stake in the bank.

That's according to chief executive of the bank Ross McEwan. Speaking at the Bank of America Merrill Lynch Banking and Insurance Conference in London, Mr McEwan said RBS buying back its shares could be a good move for investors.

"I would rather participate as the government is selling down [...] I think it's probably the best thing for all investors, where excess capital goes back through buy-backs," he explained.

The bank was rescued by a £46 billion government bailout during the 2007/09 financial crisis. In August, the government sold a 5.4 per cent stake in RBS at a loss of £1 billion. The plan is to sell off three-quarters of its stake over the next five years.

Mr McEwan said that the bank was on track to meet key financial targets. It is aiming for a core Tier 1 capital ratio of 13 per cent and plans to return any capital above that level, with share buy-backs being an option.

However, he also warned that the bank continues to be affected by issues relating to past misconduct. Authorities in the US are currently investigating allegations that the bank misled investors in mortgage-backed securities. Here in the UK, British regulators are examining how the bank dealt with struggling small businesses. Mr McEwan noted that potential conduct and litigation settlements will need to be factored into business progress.

"We're dealing with these as quickly and as prudently as possible but they will continue to be a drag on this business for the next six to 12 months," he said.

Lloyds government stake

RBS isn't the only bank with shares currently owned by the UK government. Last week, the government sold a one per cent stake in Lloyds, bringing the taxpayer-owned stake in the bank to less than 12 per cent.

The chancellor plans for all of Lloyds shares sold by the end of the year.

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