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UK aims to restart RBS privatization by March 2019

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UK aims to restart RBS privatization by March 2019

The U.K. government will seek to relaunch the privatization of its majority stake in Royal Bank of Scotland Group Plc by the end of the 2018-2019 fiscal year, the Treasury said in its autumn budget.

The U.K. off-loaded a 5.4% stake in RBS in August 2015 but still owns roughly 73% of the lender, which it bailed out at the height of the global financial crisis. Chancellor Philip Hammond conceded in April that the stake might have to be sold at a loss relative to the £45 billion the government paid for it.

In the spring budget, released in March, the government had said "legacy issues" hanging over RBS made it uncertain when further disposals would take place. These include negotiations with U.S. authorities over allegations of mis-selling residential mortgage-backed securities in the run-up to the 2008 crash, which are expected to lead to a multibillion-dollar fine.

However, the autumn budget indicates that the government now expects to resume the privatization process by the end of the 2018-2019 fiscal year — which runs from April 6 to April 5 — and expects to off-load £15 billion worth of shares, or two-thirds of its stake, by the end of the budget's five-year forecast period, which runs through 2022.

The independent Office for Budget Responsibility, or OBR, noted in its assessment of the budget that it estimates that the government would realize a loss of £26.2 billion were it to sell the entirety of its RBS stake at current market prices. That figure is inclusive of the £12.1 billion estimated cost to the Treasury of borrowing the money it used to bail the lender out.

The budget also notes that earlier in 2017, UK Asset Resolution off-loaded £11.8 billion of mortgages written by the failed Bradford & Bingley and that an overall £15.65 billion program of sales is expected to conclude early in the 2018-19 fiscal year. That marks a modification from the spring budget projection that the program of sales would be finished by the end of 2017-18.

The OBR said the entirety of the government's crisis-era financial sector interventions would represent a loss of £21.8 billion, based on receiving all loan repayments in full and on selling its remaining shares at October-end values.

The Treasury also said the government will increase the number of potential members that a credit union serving a local area can have to 3 million from 2 million.

The government will also publish a new long-term strategy "to ensure that the U.K. asset management industry continues to thrive and deliver the best possible outcomes for investors and the U.K. economy." These will include actions on harnessing financial technology solutions and "continuing a coordinated program of international development."

As part of a plan to finance growth in innovative startups, the government also announced plans to free up more than £20 billion in "patient capital investment," including by establishing a £2.5 billion investment fund, incubated in the British Business Bank, which is designed to be floated or sold once it establishes a track record. Co-investment with the private sector will unlock a total of £7.5 billion of investment, the Treasury said.

Additionally, the British Business Bank will kick off a series of investments in private sector fund of funds of scale, seeding a first wave with up to £500 million. As many as three waves will be launched, supporting up to £4 billion in investment.

The U.K. Pensions Regulator will also clarify how pension funds can invest into assets with a long-term horizon, such as venture capital and infrastructure, and establish a working group of institutional investors and fund managers to examine how to remove barriers stopping some defined contribution pension savers from investing in illiquid assets.

Insurers in Britain — and elsewhere have urged regulators to ease regulations that have led them not to make such long-term investments, which are frequently penalized precisely because of their long-term and generally illiquid nature.