* RBS readies for UK stake sale in two years - Chairman
* Sale could include an offer for small investors - Hampton
* RBS quits asset insurance scheme, says protection not
* APS exit key step in returning RBS back to private sector
* RBS shares up 2 pct
LONDON, Oct 17 (Reuters) - State-controlled Royal Bank of
Scotland is preparing for the British government to
start selling its shares in the bank in two years, its chairman
said on Wednesday.
"The exercise we're engaged in at the moment is to get the
business into a shape that is most attractive for an offer for
sale to the British public and internationally, probably, in
2014," Philip Hampton told Reuters.
The government owns 82 percent of RBS after rescuing the
bank with 45 billion pounds ($73 billion) of capital pumped in
when it neared collapse in 2008. The timing of any sale will be
up to the Treasury.
Hampton said the structure of the sale would also be up to
the government, but there could be an offer to smaller
"We won't necessarily just be targeting sophisticated
investors. We'll be targeting the public. The bank needs to be
appropriately positioned for that," he said on the sidelines of
the British Bankers' Association's annual conference.
Hampton's comments came hours after RBS pulled out from a
government plan that insured its riskiest loans, clearing an
important hurdle on its bumpy way to freeing itself from state
RBS will withdraw from the scheme as the protection is no
longer needed, saving it 125 million pounds each quarter in
The company was forced to take the insurance as part of the
state rescue four years ago, which left the government with an
82 percent stake.
It needs to show the bank has returned to good health, is
less risky and has resolved several technical issues before the
stake can realistically be reduced, investors and analysts said.
"The government's strategy remains to return RBS to the
private sector when it is value for the taxpayer to do so. Today
is a step in that direction," said finance minister George
The government is sitting on a 20 billion pound loss on RBS
and could sell a first tranche of shares at a loss, but there
are several more milestones to pass before that is likely.
"My betting is first placement prior to (the) next election
(in 2015) but it's a fluid situation," said one of the 10
biggest investors in the bank, who asked not to be named.
BUMPS IN ROAD
RBS has paid the minimum required premiums of 2.5 billion
pounds ($4 billion) since joining the UK Government's Asset
Protection Scheme (APS) in 2009.
The news was widely expected, but welcomed and RBS shares
closed up 2.2 percent at 286.1 pence, one of the strongest gains
made by European bank shares.
"This is positive news as it had been rumoured over the
summer that the exit might be delayed into 2013," said the
institutional investor in regard to the APS exit. "There is a
small additional positive today in that there are no onerous
The specially designed insurance scheme capped potential
losses on 282 billion pounds of RBS's most toxic assets after
the 2008 bailout.
For the UK to start selling RBS shares the bank still needs
to complete a complex capital restructuring, parts of which
require approval from European regulators.
It would involve getting rid of a dividend access share -
which gives the government the right to an enhanced dividend
payout and could cost the bank about 1.8 billion pounds - and
converting the government's B shares into ordinary shares.
The bank could also look to sell its U.S. business Citizens,
and use the proceeds to buy back some of the government's
shares, analysts said.
Those steps would improve the government's chances of
selling RBS shares, creating a well capitalised bank with a
clear UK focused strategy. That could appeal to a sovereign
wealth investor such as Qatar, although the full turnaround is
likely to take many more years, analysts said.
The bank continues to hit bumps. It last week successfully
sold a first tranche of shares in its insurance arm Direct Line
, but days later its 1.65 billion-pound deal to sell 316
bank branches to Spain's Santander collapsed.
It has to restart the sales process and may only get half
that amount from a new buyer.
RBS is also under investigation by the U.S. and UK
authorities over the Libor interest rate-rigging scandal and
possible breaches of U.S. economic sanctions against Iran.
Those issues are threatening to overshadow the turnaround
driven by Chief Executive Stephen Hester, who said earlier this
month that there was "about 15 months of heavy lifting still to
do" under its recovery plan.