Government brings ownership of NatWest to 22.5%
Life comes at you fast if you are the person responsible for maintaining the shareholder register at NatWest.
Until last week, it was hoped that the bank would be at the centre of Jeremy Hunt‘s plans to get millions more Britons investing in the stock market.
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The chancellor first said last year that he hoped a new generation of retail investors could “engage with public markets” by buying some or all of the government’s remaining shareholding in NatWest.
With a nod to Margaret Thatcher’s successful privatisations in the late 1980s – which saw more than 10 million Britons become shareholders for the first time via stakes in businesses like British Telecom, British Airways and Rolls-Royce – the chancellor conjured up the spirit of the “If you see Sid, tell him” advertising campaign that, in autumn 1986, convinced more than 1.5 million Britons to buy shares of British Gas.
He told MPs in November: “It’s time to get Sid investing again.”
Those plans have now been scuppered by the unexpectedly early general election and the retail offer was formally shelved last weekend.
Determined to return to private ownership
Today, though, brought evidence that the government remains determined to return NatWest to private ownership.
It announced it has sold £1.24bn worth of shares in the lender back to NatWest itself – taking its stake down from nearly 26% to 22.5% in the process.
That stake, at its peak, had stood at nearly 84% after Gordon Brown‘s government was forced to rescue the lender – then called Royal Bank of Scotland – in 2008 at the height of the global financial crisis.
The government took its stake below 30% – which is deemed to be a controlling shareholding – with a sale to institutional investors in March this year.
The latest sale, carried out off-market, was at a price of 316p-a-share – a smidgen below NatWest’s closing price of 316.2p on Thursday night. It is the fourth such buy-back by NatWest of its shares from the government since 2021.
‘Important milestone’
Paul Thwaite, NatWest’s chief executive, said: “This transaction represents another important milestone for NatWest Group, building on recent momentum in the reduction of HM Treasury’s stake in the bank.
“We believe it is a positive use of capital for the bank and for our shareholders and represents further progress against the ambition to return NatWest Group to full private ownership.
“Our focus remains on delivering for our customers which will, in turn, deliver for our shareholders and the UK economy.”
There are a few observations to make here.
The first is that, attractive as it would have been to get a new generation of retail shareholders investing in the UK stock market, selling down the government’s stake in NatWest in this way delivers better value for money for taxpayers.
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That is because the government would have been forced to sell its NatWest shares at a significant discount to the prevailing market price to encourage retail investors to pony up.
It would also probably have had to have offered other incentives, such as bonus shares for those shareholders retaining their stake for a year, to avoid those investors from ‘stagging’ the issue, in other words, buying the shares at a discount and then selling them immediately to lock in a modest profit.
Likely a shareholder for years but more sales in the coming weeks
The second observation is that the government – whoever wins the general election – is likely to remain a shareholder in NatWest for some time to come.
While a retail share offer might not necessarily have represented good value to taxpayers, it would certainly have accelerated the bank’s full return to private ownership. Mr Hunt has pledged to return NatWest to full private ownership by the end of 2026.
And a third is that this latest move does not preclude further share sales in coming weeks.
The Treasury has been using three ways to reduce its stake.
One is via direct sales to NatWest itself. This is unlikely to happen again for a while because it needs to be approved by NatWest shareholders – and the most recent authorisation has just been fulfilled by the latest purchase.
The second is via sales of large portions of the government stake to shareholders – which requires a sign-off by ministers and is therefore unlikely during the election campaign.
The third is via the Treasury’s existing sales plan, under which small quantities of stock shares are released into the market, which is probably the way forward for now.
The government’s exit via this latter route will undoubtedly be aided by the rally in NatWest shares which, since the start of the year, are up by just over 43%. The lender recently published its best annual results since the rescue of the old RBS.
What does Labour make of it?
What is not yet clear is the attitude that a future Labour government might take on the stake in NatWest.
It was always suspected when Jeremy Corbyn was Labour leader that, should he become prime minister, he would have retained the shareholding.
Sir Keir Starmer, by contrast, is assumed to be sympathetic to selling down the stake just as the current government is.
As Gary Greenwood, banking analyst at the investment bank Shore Capital, told clients earlier this week: “Should the Labour Party come to power, as widely anticipated, then such plans [for a retail share offer] are likely to be revisited and possibly amended.
“That said, whoever wins the election will still be looking to reduce and ultimately exit the Government’s stake in NatWest, in our view, so the sell down is still likely to continue in one form or another.”
Mr Thwaite and his colleagues would doubtless like to see NatWest returned to private ownership as quickly as possible so they can get on with running the bank and restoring its fortunes.
It would be helpful for all concerned were Mr Hunt’s shadow, Rachel Reeves, to make it clear where Labour stands on the timing of this.
The UK economy unexpectedly shrank in May, even after the worst of Donald Trump’s tariffs were paused, official figures showed.
A standard measure of economic growth, gross domestic product (GDP), contracted 0.1% in May, according to the Office for National Statistics (ONS).
Rather than a fall being anticipated, growth of 0.1% was forecast by economists polled by Reuters as big falls in production and construction were seen.
It followed a 0.3% contraction in April, when Mr Trump announced his country-specific tariffs and sparked a global trade war.
A 90-day pause on these import taxes, which has been extended, allowed more normality to resume.
This was borne out by other figures released by the ONS on Friday.
Exports to the United States rose £300m but “remained relatively low” following a “substantial decrease” in April, the data said.
Overall, there was a “large rise in goods imports and a fall in goods exports”.
A ‘disappointing’ but mixed picture
It’s “disappointing” news, Chancellor Rachel Reeves said. She and the government as a whole have repeatedly said growing the economy was their number one priority.
“I am determined to kickstart economic growth and deliver on that promise”, she added.
But the picture was not all bad.
Growth recorded in March was revised upwards, further indicating that companies invested to prepare for tariffs. Rather than GDP of 0.2%, the ONS said on Friday the figure was actually 0.4%.
It showed businesses moved forward activity to be ready for the extra taxes. Businesses were hit with higher employer national insurance contributions in April.
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The expansion in March means the economy still grew when the three months are looked at together.
While an interest rate cut in August had already been expected, investors upped their bets of a 0.25 percentage point fall in the Bank of England’s base interest rate.
Such a cut would bring down the rate to 4% and make borrowing cheaper.
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Analysts from economic research firm Pantheon Macro said the data was not as bad as it looked.
“The size of the manufacturing drop looks erratic to us and should partly unwind… There are signs that GDP growth can rebound in June”, said Pantheon’s chief UK economist, Rob Wood.
Why did the economy shrink?
The drops in manufacturing came mostly due to slowed car-making, less oil and gas extraction and the pharmaceutical industry.
The fall was not larger because the services industry – the largest part of the economy – expanded, with law firms and computer programmers having a good month.
It made up for a “very weak” month for retailers, the ONS said.
Monthly Gross Domestic Product (GDP) figures are volatile and, on their own, don’t tell us much.
However, the picture emerging a year since the election of the Labour government is not hugely comforting.
This is a government that promised to turbocharge economic growth, the key to improving livelihoods and the public finances. Instead, the economy is mainly flatlining.
Output shrank in May by 0.1%. That followed a 0.3% drop in April.
Ministers were celebrating a few months ago as data showed the economy grew by 0.7% in the first quarter.
Hangover from artificial growth
However, the subsequent data has shown us that much of that growth was artificial, with businesses racing to get orders out of the door to beat the possible introduction of tariffs. Property transactions were also brought forward to beat stamp duty changes.
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In April, we experienced the hangover as orders and industrial output dropped. Services also struggled as demand for legal and conveyancing services dropped after the stamp duty changes.
Many of those distortions have now been smoothed out, but the manufacturing sector still struggled in May.
Signs of recovery
Manufacturing output fell by 1% in May, but more up-to-date data suggests the sector is recovering.
“We expect both cars and pharma output to improve as the UK-US trade deal comes into force and the volatility unwinds,” economists at Pantheon Macroeconomics said.
Meanwhile, the services sector eked out growth of 0.1%.
A 2.7% month-to-month fall in retail sales suppressed growth in the sector, but that should improve with hot weather likely to boost demand at restaurants and pubs.
Struggles ahead
It is unlikely, however, to massively shift the dial for the economy, the kind of shift the Labour government has promised and needs in order to give it some breathing room against its fiscal rules.
The economy remains fragile, and there are risks and traps lurking around the corner.
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Concerns that the chancellor, Rachel Reeves, is considering tax hikes could weigh on consumer confidence, at a time when businesses are already scaling back hiring because of national insurance tax hikes.
Inflation is also expected to climb in the second half of the year, further weighing on consumers and businesses.
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