Rarely has a report from the usually fearless National Audit Office been so timid in its conclusions and yet, on close inspection, so damning in its findings.
The bungled pricing of Royal Mail left the taxpayer out of pocket by £750m on day one – more than enough to build a major general hospital. By any measure, Royal Mail was savagely underpriced, coming to the market at 330p a share, jumping 38% on the first day of trading and marching above 600p within eight weeks.
If you sold your home for £330,000 on the advice of an estate agent, then found the buyer offloading it just weeks later for £600,000, you’d feel pretty sore. So who were the government’s estate agents? Step forward Lazard and Co, paid £1.5m to act as chief adviser, while the syndicate of investment banks involved in the “book building” (Goldman Sachs, UBS, Merrill Lynch and Barclays, among others) pocketed another £11.2m.
The details of the NAO report reveal that Lazard was “incentivised solely to complete a transaction”, rather than get the highest price for the Treasury. The department accepted the shares needed a yield of 6-8% to ensure a sale – at a time when the FTSE was yielding half that (3%) – an extraordinarily under-ambitious level given the appetite for high yielding investments among institutions.
It gave preference to 16 “priority” investors (assumed to be Britain’s leading pension funds), which obtained £728m-worth of shares – more than the total amount allocated to 690,000 small investors – in the naive belief they would form a stable, long-term shareholder base. Most sold out in a matter of weeks, at considerable profit.
Vince Cable’s response? The Guardian:
“The last thing I intend to do is apologise,” Cable said. He insisted that the privatisation had been a success and that there had been a real risk that the flotation could have failed if the shares had been priced higher.
So, basically, “I don’t want to be embarrassed, so we gave it away”. I had higher hopes for Cable than acting as an enabler for Osborne et al.
As Simon Jenkins in The Guardian notes:
There must be a better way of selling off the family silver than Cable’s way. Why can the Treasury not find independent advice? Why are the same banks allowed to act, at least in appearance, as sellers and buyers? Why is there no other way of market-testing or auction? Were such a stink to have emerged in local government or the private sector, we can hear the scathing comments from the Treasury bench. When the smell is in their own backyard, they are strangely silent.
As Political Scrapbook observes:
George Osborne’s best man heads up a hedge fund which has secured profits of £36m from the privatisation of Royal Mail.
A coincidence, surely?