According to the Guardian on Wednesday 28th February, UK Chancellor of Exchequer Jeremy Hunt announced that he would look to sell the remaining 39% of the government’s stake in NatWest. During the 2008 financial crisis, the government gave a bailout to many banks by buying a substantial proportion of their stock. This was necessary to prevent the national economy from collapsing, alongside the threat of major job losses and a lack of investor confidence causing them to pull out or liquidate their investment. One of the most expensive bailouts in the UK was with NatWest, with an initial stake of 84% (or £45.5 billion) being bought.
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Picture of Jeremy Hunt during the Autumn 2023 Statement
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Why now?
Over the last 16 years, the UK has conducted various campaigns to slowly divest this stock back to consumers and retail investors, and now Jeremy Hunt wishes to make another push at raising around £3-4 billion by selling more stock. This gradual divestment strategy is effective for waiting until NatWest profits are highest, and then selling the stock. The Guardian reported that pre-tax profits earned by the 35% government stake rose by 20% to £6.2 billion by December 2023, even higher than stock analysts’ predictions of £6 billion, and NatWest marked its largest annual profit since the £10 billion it made in 2007 before the financial crisis. Moreover, the bank made significantly more money on loans and mortgages compared to the interest rate at which they paid savers, causing shares to rise by 5%. Overall, it is the best time for the government to sell shares, especially because with the UK entering a recession, the position of the economy throughout this year is uncertain. According to Proactive, Anand Sambasivan, CEO of Primary Bid, said “At this critical moment for the UK’s capital markets, involving the British public in NatWest’s privatisation makes complete sense. It’s an opportunity to rebuild engagement and ownership in our public markets.”
Hunt didn’t at once pounce on the opportunity in December as he waited until Paul Thwaite fully entered his new role as NatWest CEO, to ensure stable leadership for NatWest during important transactions such as these. Thwaite’s predecessor, Alison Rose, stepped down after an intense argument with politician Nigel Farage. The government aims to fully privatise NatWest by 2026.
Why does the government want to divest the stock?
There are several vital reasons why it is important that eventually most of the government stock must be sold. If another fiscal crisis occurs, or for that matter any other setback, the government need to be in a position to bail out NatWest once again by repurchasing their stock. If the government already own too much stock, money to fund banks will have to come from taxpayer pockets, i.e. a significant rise in taxes. Additionally, the influence of government and politics slowly creeping into NatWest’s governing may cause priorities for the bank to shift away from profitability to serving political agendas. Government ownership may deter private investors and reduce NatWest’s market competitiveness.
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Cover Image – Money Week
