Britain’s plan to sell NatWest bank shares to the public this summer will be a test of the UK stock market’s long-awaited recovery, which saw the FTSE-100 hit a record high this week – months after similar milestones for benchmarks elsewhere in the world.
Finance Minister Jeremy Hunt hopes the sale of government-held shares in the bailed-out bank, Britain’s biggest casualty of the 2008 global financial crisis, will encourage Britons to invest more in the Kingdom’s listed companies -United.
In November, Mr Hunt recalled memories of Margaret Thatcher when he said it was “time for Sid to invest again”, referring to the marketing campaign the former prime minister launched for the privatization of British Gas in the 1980s.
But encouraging investors to buy NatWest now, amid global geopolitical turmoil and economic uncertainty, could backfire, wealth managers and investors say.
“Despite the record highs set by the FTSE 100, sentiment around UK investment is quite weak and I believe a retail offering is a riskier option to improve shareholding and sentiment towards the UK market,” Dan said Boardman-Weston, managing director of BRI Wealth Management.
“There is a lack of financial literacy in the UK, and we need to tackle this problem before we start to address the lack of public shareholding. I fear that a sale of NatWest to the public is not something to announce at Sid.”
The task of attracting more domestic and foreign investment into UK listed companies has kept ministers and CEOs busy for years, but progress has been slow, with reforms such as an ISA (investment account individual savings) tax-advantaged British being still under study.
“Mark Bentley, director of ShareSoc, one of the UK’s largest associations of individual investors, said: “I feel like this is a political stunt because the government intends to organize the sale in the run-up to the general elections.
“Banks are very complex entities to invest in… A ‘tell Sid’ marketing campaign could be very problematic if it makes things too simplistic.”
Mr Hunt is yet to confirm the sale, but UK Government Investments, which manages the taxpayers’ stake, is working with banks and other advisers, including advertising agency M&C Saatchi, on details including size, haircut and structure.
“We are already seeing market research that shows a sale would be supported by all sections of society, particularly young adults and ethnic minorities,” Financial Services Minister Bim Afolami told Reuters by mail electronic.
He added that any sale would be subject to “market conditions and value for money”.
The government abandoned a similar proposal to sell Lloyds Banking Group shares to the public in 2016, citing poor market conditions triggered by Brexit.
Unlike an IPO, Hunt must focus on generating investor interest in shares they can already easily buy on the market.
Additionally, while NatWest shares are still 40% cheaper than the 502p price paid by the government during its bailout, they have jumped more than 80% since hitting their lowest level in two and a half years in October.
“Why should investors care now?,” said Nicholas Hyett, investment manager at retail investment platform Wealth Club.
A spokesperson for NatWest, which reported a smaller-than-expected fall in first-quarter profits on Friday, said decisions on a retail offer were “a matter for the government”.
NatWest CEO Paul Thwaite said on Friday the bank was taking steps to be ready if the government decided to go ahead with a sale.
“I think the retail sharing offer, if it happens, is an important opportunity because it further reduces (government) involvement,” he told reporters at a news conference following NatWest results.
The government has already reduced its stake in NatWest to less than 30% and wants to exit completely by the end of 2026.
THE DISCOUNT DILEMMA
In previous privatizations, such as that of Royal Mail, the government had greater freedom to set a price that could rise after the sale. But with NatWest it is limited by market price and recent volatility.
UK bank stocks have proven to be tricky investments since the financial crisis, with prices battered by the pandemic, scandals and erratic profitability.
To compensate, lenders are working to rebrand themselves as income-driven investments and, now that rising interest rates are boosting profits, they are paying generous dividends to woo long-term shareholders.
NatWest has paid out almost 12.5 billion pounds ($15.7 billion) to investors over the past three years and increased its dividend per share by 26% in 2023.
NatWest could benefit from a massive government buyout and retail offering to support its shares, according to banking and investment industry sources.
ShareSoc’s Mr Bentley said he doubted the sale alone could revive the UK’s shareholding culture, as most buyers would probably just make “a quick cash grab” .
Calastone data shows monthly outflows from UK equity funds reached their highest level in more than a year in March, the 34th consecutive month of net sales by investors.
The outflows came just weeks before the FTSE-100 hit its all-time high, underscoring many investors’ continued nervousness about UK stocks.
Existing NatWest shareholders hope a government exit will erase what some call an “interference discount” on its valuation.
“The bank itself is in good health,” said Richard Marwood, portfolio manager at Royal London Asset Management, one of NatWest’s main investors.
“The sale of the government’s stake could clearly cause collateral damage to the bank’s public reputation if it doesn’t go well, but that is beyond management’s control.
($1 = 0.7990 pounds)
