The truth is now slowly emerging about the Osborne/Cable disastrously mishandled Royal Mail sale. No less a bank than JP Morgan, arguably (until its recent fall from grace) the world’s top investment banker, told ministers before the flotation that the company should be valued at £10bn, three times the price finally settled on by the government.
That would mean that, at a time of extreme pressure to reduce the deficit, the government blew as much as £7bn which could have provided badly needed relief for taxpayers. The share price already reached today, a fortnight after the float, values Royal Mail at over £5bn, nearly £2bn more than the government originally priced its IPO.
This can only mean one of two things: either the government, after paying out to its banking advisers tens of millions of pounds of taxpayers’ money, made a colossal miscalculation for which Cable should resign or his financial advisers should be denied payment; or the government deliberately and drastically under-priced Royal Mail in order to achieve the ideological objective, at massive expense to taxpayers, of making privatisation wildly popular among small investors.
This failure to realise the company’s true value is already being played out with consequences detrimental all around. Because the budget deficit has not declined over the last 3 years from the very high level of £120bn, Osborne is now extracting a further £33bn in benefit cuts over the next 2 years – a sum that is appallingly (and unnecessarily) high, but could have been reduced by £4-7bn if the company had been properly priced.
Because the price tag put on it was so low, it has attracted aggressive hedge fund operators like Chris Hohn of TCI to buy up the maximum shares available from the free float once immediate gains had been pocketed, which will soon put the company at the mercy of these predators (Hohn has already snapped up 5.8% of the equity, a significant controlling force). And the government has failed in its (alleged) intention to create a wide community of investors in popular capitalism since very few of the small investors have in the past and will here retain their shares long-term, largely because the government itself has so drastically squeezed their resources in other ways.
Goverment business spokesperson Lord Popat said the banks that helped with the sale would receive up to £18.4 million in fees.
So the Royal Mail sell-off was probably preceded by an auction: the bank offering the best paid non-executive directorships to the supervising politicians had their estimate accepted and were then ‘invited’ to assist with the sell-off con.