RBS to disinvest in Bank of China

08 January 2009

Now controlled by the UK government, The Royal Bank of Scotland is planning to dispose of its £2 billion worth stake in Bank of China as the lock-in period expired last week and the new chief executive, Stephen Hester, appointed by the government, is under pressure from the government to make use of the banks meager resources to aid the British economy.

RBS, which was Britain's second-biggest bank before it lost 85 per cent of market value last year, posted its first annual loss in 40 years as bad loans increased and the bank reported more than £7 billion of credit losses last year.

The British government became its largest stakeholder in November last year when investors took only 0.2 per cent of shares offered in the UK's biggest bank bailout, leaving the government with almost £20 billion ($31 billion) of stock and a majority stake of 57.9 per cent. (See: British government becomes majority shareholder in RBS as investors reject stock offering)

RBS was to have raised £5 billion directly from the British government in return for preference shares. Another £15 billion was to come from ordinary shareholders in a share placement underwritten by the British Treasury, but investors took only 0.2 per cent of shares offered in the UK's biggest bank bailout.

In order to gain access to the booming Chinese banking market in 2005 and 2006, RBS as well as other foreign financial institutions acquired small stakes in the three largest Chinese banks ahead of their stock market listings.

RBS along with UBS, Merrill Lynch, Temasek of Singapore and Hong Kong's billionaire, Li Ka-Shing formed a consortium to acquire stakes in Bank of China before it was listed in the Hong Kong stock exchange with RBS acquiring 4.3 per cent stake.