How Much Has Royal Bank of Scotland Group plc Cost Taxpayers?

Will Royal Bank of Scotland Group plc (LON: RBS) pay us back?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

rbsWhen the government poured billions into rescuing Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US) from its own mismanagement, people were inflamed.

Why on earth should money from honest taxpayers be used to prop up the greedy fat cats of banking when they had it coming?

It’s a good question, but was it really as simple as throwing good money after bad?


When crunch time came in October 2008 and it was apparent that we were in the midst of a full-blown banking crisis, RBS announced that it was heading for a massive loss for the year — trading losses were large, but would be overshadowed by write-downs due to the bank’s inept record of overpriced and overstretched takeovers.

(Ex-Sir) Fred Goodwin, who had overseen the debacle, handed in his resignation — and it was enthusiastically accepted.

In the end, RBS recorded the UK’s biggest ever corporate loss, of an eye-watering £24.1bn.

The result, as we know, is that the government stepped in, originally intending to take a stake of around 58%. With subsequent further intervention and the conversion of some investments to ordinary shares, taxpayers today own 81% of Royal Bank of Scotland.

How much did it cost?

According to the latest National Audit Office figures, the cost of RBS shares has totaled £46bn — there’s a further £8bn promised as a contingency plan should RBS’s Core Tier 1 capital ratio fall below 5%, but that’s not looking likely now.

What do we have to show for it?

As of close of play on 13 March, the total market capitalisation of Royal Bank of Scotland stood at £18.7bn, putting the value of our 81% share of it at £15.1bn. That’s a loss of almost exactly two-thirds, or 67% — it’s no wonder private capital was not forthcoming to rescue the failing and flailing bank.

Will we ever get it back?

Despite the disaster in the relatively short term, I think the eventual outcome will be comfortable.

RBS is some way behind fellow struggler Lloyds Banking Group when it comes to recovery — while Lloyds managed its first pre-tax profit since the crisis in 2013, RBS still made a loss to the tune of £8.2bn.

Jam soon

But there’s a profit forecast for 2014, and I expect we’ll see a better share price performance over the next two or three years. With Lloyds, our investment is already around the breakeven point, and with a few more years behind us it should become clear that bailing out the two of them made better financial sense than letting them go bust.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan does not own any shares in RBS or Lloyds.

More on Investing Articles

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Taylor Wimpey shares yield a fabulous 6.41%, but is the dividend safe?

Harvey Jones has enjoyed plenty of growth and income after buying Taylor Wimpey shares last year. But is today's high…

Read more »

Yellow number one sitting on blue background
Investing Articles

1 FTSE lithium stock I think could be ready to rocket

Jon Smith explains why the lithium price could be due a rally, and why shares of one related FTSE stock…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
US Stock

This growth stock that Warren Buffett owns just hit 52-week lows. Should I buy?

Jon Smith flags up a high-profile US stock that the great Warren Buffett bought back in 2020 but which has…

Read more »

White female supervisor working at an oil rig
Investing Articles

Could the UK general election be bad news for this FTSE 250 energy producer?

The country is due to vote in the general election on 4 July. Our writer looks at the possible implications…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should we buy cheap FTSE 100 shares now, before it’s too late?

The FTSE 100 is up 5% so far in 2024 and hit an all-time high in May. That means the…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Here’s why I think the Lloyds share price could hit a 5-year high in 2024

It's up 13.5% so far in 2024, and reaching new highs. But where might the Lloyds Bank share price go…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

If I’d put £15k into this FTSE 250 stock in 2008, I’d have over £1.26m today

This multi-billion-pound business has created plenty of millionaires over the last 16 years, but can it repeat this performance?

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

3 dividend shares I’ve bought for the next decade!

I think these UK dividend shares can amplify my long-term passive income, and could even be on track to becoming…

Read more »