UK takes 1 billion pounds hit in RBS sell-off

A worker sweeps in the foyer of a Royal Bank of Scotland office in the City of London in this file photo. Britain started to return its holding in RBS to private investors on Monday, seven years after it bailed out the bank.[Photo/Agencies]

LONDON - Britain took a 1.1 billion pound ($1.7 billion) loss on its first sale of shares in Royal Bank of Scotland (RBS) on Tuesday, sparking accusations of poor timing from opposition politicians.

The UK government sold a 5.4 percent stake in RBS at 330 pence per share, a third below the price paid when Britain rescued the bank with 45.8 billion pounds of taxpayer cash at the peak of the 2007/09 financial crisis.

The move raised 2.1 billion pounds and is expected to be followed by several more sales. Overall, the government is sitting on a 15 billion pound loss on its holding, based on the current stock price and its average purchase price of 502 pence.

But the sale was more about starting the process of returning RBS to the private sector and showing investors the government is reducing its interference in the bank, rather than avoiding a loss, people familiar with the decision told Reuters.

"While the easiest thing to do would be to duck the difficult decisions and leave RBS in state hands, the right thing to do for the economy and for taxpayers is to start selling off our stake," Finance Minister George Osborne said.

But the opposition Labour Party slammed the sale.

"RBS had to be bailed out urgently, but it doesn't have to be sold off at the same speed," said Chris Leslie, its finance spokesman.

"The Chancellor (Osborne) needs to justify his haste in selling off a chunk of RBS while the bank is still awaiting a U.S. settlement for the mis-selling of sub-prime mortgages," Leslie added, referring to a potentially massive fine from U.S. authorities, related to RBS's past sales of U.S. mortgages.

RBS has set aside 2.1 billion pounds for a settlement but analysts estimate it could cost as much as 9 billion pounds, which has weighed on the stock.

The share sale, which cuts taxpayers' holding to 72.9 percent from 78.3 percent, marks a milestone in Britain's recovery from the financial crisis, and is part of Osborne's strategy to improve the country's finances.