CNBC's UK Exchange newsletter: A lament for the losses on Royal Bank of Scotland

The UK government recently completed the sale of its remaining stake in NatWest (formerly Royal Bank of Scotland), marking the end of a 17-year period since the bank's £45.5 billion bailout during the 2008 financial crisis. While the government recouped approximately £35 billion, the disposal resulted in a £10.5 billion loss for taxpayers, which is compounded by the forced sale of valuable assets like WorldPay due to European Commission state aid rules. Despite the loss, the article emphasizes that the bailout was a rescue operation, not an investment, and that post-crisis regulations have strengthened the banking sector, with NatWest now a profitable lender poised to contribute to UK growth.

Analysis

The UK government's recent sale of its remaining stake in NatWest (NWG), formerly Royal Bank of Scotland, concludes a 17-year period that began with a £45.5 billion bailout in 2008, resulting in a £10.5 billion loss for taxpayers. This figure, however, contextualizes the intervention as a necessary rescue operation to prevent systemic financial collapse, given RBS's balance sheet at the time exceeded UK GDP, rather than a traditional investment. The financial outcome for the taxpayer was further negatively impacted by European Commission state aid rules, which mandated the divestment of valuable assets, notably WorldPay, sold for $3 billion in August 2010 and later acquired by FIS for $43 billion in March 2019, representing a significant loss of potential value. The article emphasizes that under successive leadership and bolstered by stricter post-crisis financial regulations focused on increasing capital buffers and reducing procyclicality, RBS/NatWest has transformed into a "financially robust and highly profitable lender." The bank is now considered well-positioned to contribute to UK economic growth, particularly through its strong business banking franchise, and is expected to return significant profits to shareholders via dividends and buy-backs. The positive sentiment signal for NWG (0.7) aligns with this outlook of a restructured and stable financial institution.

Key Decisions for Investors

• Investors should evaluate NatWest (NWG) on its current financial strength, profitability, and its stated intention to return capital to shareholders through dividends and share buy-backs, particularly now that the government's shareholding has been fully divested, potentially removing a market overhang.
• Consider the enhanced stability of the UK banking sector due to learned lessons from the RBS collapse and subsequent stringent regulatory reforms, while also noting the article's implicit suggestion that the government's exit timing might forego potential future upside for taxpayers, which could imply remaining value for current investors.
• Assess NatWest's growth prospects, especially within its business banking division, but also acknowledge that its long-term value proposition has been shaped by historical forced asset sales, such as WorldPay, meaning its current structure differs significantly from its pre-crisis configuration.