Royal Bank of Scotland Group Plc, Britain’s biggest government-owned bank, may use surplus capital to buy back part of the taxpayer’s holding, said two people with knowledge of the situation.
RBS and the government are considering the proposal after the bank’s shares rose last week, giving the Treasury a paper profit on its stake, said the people, who declined to be identified because the talks are private. The U.K. may also sell part of its 45.5 billion-pound ($70 billion) stake in Edinburgh- based RBS to money managers, the people said.
RBS may have 15.3 billion pounds of surplus capital by 2012 as the lender sells assets and closes operations, Michael Helsby, a London-based analyst at Bank of America Merrill Lynch said in a note to investors this month. Share buybacks are a “likely outcome,” he wrote.
A buyback would help the British Exchequer cut the country’s 152.8 billion-pound deficit, the biggest since World War II. The U.K. government has made a paper profit of about 5 billion pounds on its investment in RBS after the shares rallied 91 percent this year. Taxpayers own 84 percent of the lender.
Linda Harper, an RBS spokeswoman, declined to comment as did a spokesman for UKFI, which manages the government’s holdings in the bank.