Royal Mail Flotation

If I want to sell my house I go to a reputable estate agent. They advise me on the value of my house and if I think the advice is reasonable I ask them to find a buyer. They then market the house and find a buyer at the price (or near the price) the estate agent has advised. If I find out the next day that the person to whom I sold the house has resold it at a profit of nearly double the price I got I might well ask questions about the competence and integrity of the estate agent who advised me in the first place.

When the government decided to sell shares in Royal Mail it followed approximately the same process. The result was the share price of Royal Mail nearly doubled from the original price that the government were advised as the right price to sell. The government were advised by Lazards, with help from UBS and Goldman Sachs, who seem to get a finger in every pie and pull out a plum without scalding their finger.

Part of the problem must be the competence or integrity of the advisors. The end result measures the performance. There might be difficulties in assessing the price of Royal Mail, but these advisors are handsomely rewarded for their expertise and there is no come back if their advice is wrong.

What I find most odd is that the three advisors were allocated shares in Royal Mail. This must constitute a conflict of interest, If you advise on the price and then you buy a tranche of shares at that price it is in your interests to value low, so that you do not end up buying something at the right price. Buying at the right price is an old fashioned concept; everyone wants a bargain.

The loss to the public purse of the Royal Mail share sale was about £1 billion. Lazards charged at least £1.5 million for their advice and were allocated a chunk of shares at what is clearly now known to be bargain basement prices. 43% of the shares issued in the Royal Mail flotation were resold on the first day of trading.

Shares were issued to “priority investors”. 16 investors were allocated 22% of Royal Mail and another 17% went to 94 institutional investors, 180 smaller investors enjoyed 3%,. This really constituted gravy for the mates and the wealthy.  Only 16% was reserved for the public and Royal Mail employees shared 10%. The remainder pf the shares was kept by the Shareholder Executive.

2 Responses

  1. Vince, like Blair and many others is “on a promise”. In just a few months he will quietly accept a lucrative post as adviser/director to UBS or JPM. In the mean time, Osborne’s best friend (god father to children) in Lazards has made a tidy profit.

    BUT why do we not put these defrauders in jail? Unlike shop lifters, when bankers get caught they just pay back the fraudulent money.

    Conclusion: we should jail bankers if the defraud or money launder. However, we dont because they run the UK and US governments, not us.

    • You describe the part of the process of corruption in the United Kingdom. It has always been thus. I see that Mr Kinnock’s children and Mr Blair’s children have managed to carve out lucrative careers for which they are no doubt the best qualified people in the world, by virtue of their birth, rather than any nonsense about merit.

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