Giving the Banks Away: Is it Fair? Ruth Bender Toby Thompson My name is Toby Thompson, I am here today with Dr Ruth Bender, Reader in Corporate Financial Strategy here at Cranfield School of Management. Ruth, the Lib Dems have suggested that the government privatise RBS and Lloyds by giving us all – you and me both – shares. What is your view on that? Ruth Bender Oh, I don’t like it at all Toby. Superficially it sounds really a good idea, but I think it is wrong for admin, for financial reasons and for reasons of fairness. I think, as far as the admin goes, can you imagine sorting things outs for 46 million shareholders. I mean the actual postage just sending out all the details – mind you it would make the Royal Mail profitable so maybe that is what they want out of it. But just the sheer weight of dealing with 46 million people for each of those companies, I think, is very expensive; I think there are better ways to use the money. Toby Thompson And financially? Ruth Bender Financially what is going to happen is the government is going to give us the shares, if this goes ahead, and we can sell them whenever we want. When we sell them, the first part of the proceeds will go back to the government. So the Treasury will recover, eventually, the £66 billion it put in to this. But the thing is, eventually, if I hold my shares for ten years the Treasury won’t get its money back for ten years and it kind of needs it now. And also, I teach Finance, I understand that money has a time value, so the fact that the Treasury put in £66 billion and is only going to get back that same £66 billion so many years later offends my sense of financial proprietary – they should get more back later because they have put the money in. Toby Thompson So as Joe Public, I am, I wouldn’t necessarily know how to sell shares – I wouldn’t know how to do that. Ruth Bender And that is exactly it; that I think is the problem of fairness. The argument that they are making is we all bore the pain of the bank crash, we should all get the gain. But, we didn’t all bear the pain; I am very fortunate, I work for Cranfield which is surviving very nicely thank you – I am OK as things stand. A lot of people have suffered a great deal of pain, public services have been cut because the government doesn’t have the money. To give people like me the same amount of money as anybody else, I will gain, they won’t. And if you take if further, I mean, if we just take people who are poorer probably aren’t as financially sophisticated – they will get the shares, they will need the money, they will sell the shares. You have two problems there; the shares would be worth more if you hold them for longer, all things being equal – they will miss out on that gain. But also, you will have a wave of people selling immediately; supply and demand means the share price will go down. The people who need the money will sell it cheaply and oddly enough the people who will benefit will be the financial institutions who buy them off them cheaply, who will get a much better deal than they would if it was privatised in another way. Toby Thompson But we are in a business school, we are sat in a business school here, are you against privatisation then? www.cranfieldknowledgeinterchange.com June 2011 1 Ruth Bender Oh no, I don’t want the government owning the banks, I am all for privatisation of these banks. I just think there are better ways to do it; you could do it by selling us the shares like the old Ted Sid privatisations back in the eighties, or you could do it by a placing, actually selling the shares to financial institutions and let them trickle down. I am not against privatisation; I am just against this form of doing it. Toby Thompson So what is likely to happen? Ruth Bender They will privatise; I think the Lib Dems are in favour of giving the shares to us, the Conservatives are very non‐committal about it. I am kind of hoping that it will get washed out and something else will take over, but they will privatise it and probably quite soon. Toby Thompson So is there anything we can do as individuals – what is your recommendation? Ruth Bender Oh, that is a really good question. If the government privatises and sells shares to people, past history says that privatisations tend to sell cheaply because they want it to be a success. So it might be good to buy them, but I don’t give investment advice. Toby Thompson Ruth Bender, thank you very much indeed for your time today. www.cranfieldknowledgeinterchange.com June 2011 2