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Investment banks have charged UKFI just a £1 fee for work on the government’s sell-off of shares in RBS and Lloyds.
Investment banks have charged UKFI just a £1 fee for work on the government’s sell-off of shares in RBS and Lloyds. Photograph: Bloomberg/Bloomberg via Getty Images
Investment banks have charged UKFI just a £1 fee for work on the government’s sell-off of shares in RBS and Lloyds. Photograph: Bloomberg/Bloomberg via Getty Images

What's the catch? MPs warn UKFI over banks' £1 privatisation fees

This article is more than 8 years old

Treasury committee members tell investments fund to be ‘ultra-vigilant’ on motives behind token bank fees for work on Lloyds and RBS sell-offs

The company established by the Treasury to hold the taxpayers’ stakes in RBS and Lloyds has been warned to remain “ultra-vigilant” after it was revealed some of the City’s biggest investment banks – including Goldman Sachs and UBS – are charging the government a £1 fee for work that would normally cost tens of millions of pounds.

Representatives of UK Financial Investments told the Treasury select committee it had paid just £15 for help and advice related to the sale of shares in Lloyds Banking Group and RBS which would normally have cost around £38m.

Oliver Holbourn, head of market investments at UKFI, said some City firms had even offered to pay the government to work on its privatisations. The banks, however, eventually concluded that such arrangements could be an offence under the US foreign corrupt practices act.

Holbourn’s revelations prompted concern among committee MPs about the banks’ motivation.

Andrew Tyrie, the Conservative MP who chairs the Treasury select committee, described the token £1 fees as a “rather extraordinary arrangement”.

Another Conservative MP, Chris Philp, warned UKFI to proceed with caution: “I’ve never encountered an outfit like Goldman Sachs or Morgan Stanley acting in a charitable manner,” he said. “Please be ultra-vigilant.”

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James Leigh-Pemberton, the boss of UKFI, said he assumed the banks worked for £1 because of the cache associated with such high-profile work. He said they benefited from “the franchise value of being appointed to work for an agency of the UK government and the size of transaction”.

Steve Baker, another Conservative MP on the committee, said UKFI needed to give clear answers about where the investment banking advisers are making money, given the low fees. “I feel sure that many of my constituents would join me in regarding in the utmost astonishment that the same organisations that have been fined for repeat rapacious misconduct are now the jolly good chaps we imagine from the past and now charging just £1 for their services”.

However, Mark Garnier, a Conservative MP, said the fee was a rare cause for celebration.

Goldman Sachs refused to comment on why it was charging only £1 for its services.

UKFI’s annual report lists expenses and fees for asset disposals in the last financial year – before the RBS shares were sold off in August – of £1.1m. It is unclear what this refers to.

The UKFI officials were appearing before the committee for the first time since the government starting selling off shares in RBS. The sell-off got underway despitea looming fine on the bank, which could total up to £8bn – from the US department of justice and the Federal Housing Finance Agency (FHFA) for the way RBS sold mortgage bonds in the US before the 2008 banking crisis.

RBS has set aside £2.1bn to cover the FHFA tranche of the penalty, which is not expected to be enough to cover the total cost.

Conservative MP Jacob Rees-Mogg, asked whether UKFI wanted the Treasury to try to stop US taxpayers taking money off UK taxpayers. He said: “If I were in your position I’d be saying what is the British embassy for if it is not for trying to get RBS off this fine.”

UKFI boss Leigh-Pemberton said “certainty and resolution of this issue at the earliest opportunity is highly desirable but certainty and resolution at any price is not”.

He justified the RBS sell-off – at a £1bn loss to the taxpayer – on the basis that if more shares were available to private investors it would make the bank a more attractive proposition.

He acknowledged speculation in RBS shares had risen ahead of the sell-off but said this had not affected the 330p price achieved for the government. There had been a 12m increase in the number of shares sold short – a process by which hedge funds sell shares in the hope they will make a profit when the share price falls – compared with a more usual 26m to 28m.

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