RBS shares rise despite Labour criticism of share sale

By Matt Scuffham LONDON (Reuters) - Shares in Royal Bank of Scotland rose after Britain's Conservative government said it would start selling its 32-billion pound ($49.6 billion) stake at a loss, a decision criticised by the opposition Labour party. The sale plan represents a milestone in RBS's recovery from the financial crisis but also means finance minister George Osborne has given up on his original intention of selling the shares for a profit. Labour accused the government of selling up prematurely with the bank still in the process of a major restructuring and facing more fines in relation to past misconduct. Osborne had previously said he would "need a lot of persuading" to sell the bank at a loss but changed tack after the Conservatives won Britain's general election in May with a surprise majority. "Taxpayers who bailed out RBS during the global financial crisis want their money back and will rightly be suspicious of any rush to sell," Labour's finance spokesman Chris Leslie said in a parliamentary debate. RBS was bailed out during the 2007-9 crisis at a cost of 45.8 billion pounds ($71 billion). Its shares, which closed up 1.9 percent at 361.4 pence, remain below the government's average buy-in price of 502 pence when it was rescued. Investment bank Rothschild forecast the British government would make a loss of 7 billion pounds if it sold its entire remaining stake in RBS at current share prices but would make an overall profit of 14 billion pounds from its bailout of banks during the crisis. Conservative lawmaker Andrew Tyrie, who was re-elected as chairman of parliament's Treasury Select Committee on Wednesday, said the 14 billion profit figure needed qualification. "It excludes the cost of funding the bailouts. The OBR (Office for Budget Responsibility) put this at 17 billion pounds. And it treats fees paid in exchange for a service as if they were income, or recoveries," Tyrie said. RBS SEEN IN DEMAND In a speech to financiers on Wednesday, Osborne said the government had decided to start selling its 79 percent shareholding after taking independent advice from Rothschild and the Bank of England. Analysts said there would be significant interest from institutional investors willing to overlook ongoing issues relating to past misconduct at RBS and uncertainties over Britain's continued membership of the European Union. The institutions, some of which are based in the United States, see the bank as a play on Britain's economic recovery. They are also attracted by RBS's modest valuation. The bank's market value is just 0.8 times that of its assets, according to Thomson Reuters data. By comparison, state-backed Lloyds Banking Group , in which the government has already sold almost half its stake, trades at 1.3 times the value of its assets. "I would say demand is high from large institutions in the U.S., the UK and Europe. It's a very attractive risk/reward payoff with potential excess capital down the road," Jefferies analyst Joe Dickerson said. Britain could make an initial sale of RBS shares in September to avoid clashing with the full privatisation of Lloyds next March, banking and political sources have said.. Chief Executive Ross McEwan has improved RBS's performance since succeeding Stephen Hester in 2013, benefiting from an improvement in Britain and Ireland's economies which has enabled the bank to recover loans it had written off. Rothschild said that by starting to sell its shares in RBS, the government would increase liquidity in the stock, making it more attractive to investors and sending a strong signal that RBS is on the road to recovery. (Editing by Jane Merriman and Keith Weir)