As I See It
RBS ‘loss’ worth taking; M&S needs fashion chain
RBS loss worth taking
After the last of the taxpayers’ shares are sold in Royal Bank of Scotland it looks like the net loss will be just over £6 billion. That’s the figure being used by the Office for Budget Responsibility, the fiscal watchdog, and is based on the £25.2 billion which the OBR expects the government to raise by selling three-quarters of its 79% stake, giving a total value on the holding of £33.6bn.
The Labour government in 2009 instructed the Treasury to spend £40bn rescuing the bank and it now seems to be accepted in Whitehall, Westminster and the City that the holding will be sold back to the private sector at a loss.
No one can pretend that losing £6bn is entirely excusable, but there are a number of factors that mitigate against it.
Firstly, there is no short or medium term likelihood of RBS’s shares reaching their break even price. Therefore the Treasury can feel justified in cutting its losses and getting back what it can, particularly as legal issues will continue to have a depressing effect on the shares for some time.
Secondly, the shares will be sold in tranches and if this helps instil confidence in the bank then each sale may itself stimulate the price.
Thirdly, the £6bn “loss” on RBS has to be set against a £5bn profit expected from the sale of the government’s shares in Lloyds and small profits on the disposal of Northern Rock and Bradford & Bingley’s loan books.
Finally, the write-off at RBS has to be seen in the context of what the bail-out intended. This was not an investment that proved a bad risk nor a loan that was in default, nor even a bet that proved to be a losing ticket. It was a rescue fund that enabled the banks to stay in business. There was never a requirement nor guarantee that it would be repaid at all, let alone in full.
To that extent, those who spent £65bn of taxpayers money ensuring the banking system did not collapse will probably feel some satisfaction at getting most of it back.
In the end, the predicted AGM revolt against Marks & Spencer chief executive Marc Bolland’s pay package was little more than a whimper, though powerful figures in the city – and the company’s shareholders in particular – will continue to hold a gun to his head.
Just as it was thought performance was picking up, he unveiled group figures showing the problem with sluggish womenswear sales remains unchanged. It’s a familiar story of strong figures from food, and weak income in general merchandise, the bit that sells clothing.
So why not try a new approach, like repackaging its fashion business in a stand-alone chain?
The figures clearly show that the food business – which has developed a niche for quality and variety – could do without the clothing division dragging it down. Indeed, food competes admirably against Waitrose and speciality food retailers and is expanding. Arguably, it could perform even better if capital was diverted from supporting its tardy relation.
The board will insist that clothing is a core business, and that it will come right. But shareholders’ patience is wearing thin and the board should not be blind to what their customers are telling them. They continue to be more mature consumers who want to look modern and fashionable, but are not trying to look trendy.
M&S has bamboozled its customers with too many in-house brands that lack clarity and any meaning outside the stores. It does not stock other popular high street labels such as Ted Baker, Paul Smith and so on. This puts it at a disadvantage to department stores such as Debenhams and John Lewis. Young people therefore shop in these and other stores.
If they will not go to M&S then maybe M&S should go to them: open a chain of stand-alone stores under the Autograph or Limited brand names, or one of the others it promotes.
This would be a gamble, but Mr Bolland has spent millions trying without success to lure young people into his stores. It must be worth considering.