The Royal Bank of Scotland has sold its 4.3 per cent stake in the Bank of China for about £1.7 billion. The move had been on the cards for some months, but apparently RBS wanted to seal the deal before the China and Hong Kong markets close for the Chinese new year.
RBS, which is 60 per cent government-owned, reaped an estimated £800 million profit from the sale of its BOC shares, which it bought it in August 2005 for £900 million.
The gain will be offset by taxes and by the impact of hedges put in place against a decline in the Chinese bank's share price.
RBS has put up for sale its insurance business, which includes Direct Line and Churchill. However, the fresh infusion of funds may make this less urgent. Final bids are due in next week, but these are expected to be less than the £4 billion to £5 billion that RBS wants.
A private equity consortium comprising BC Partners and Apollo is working on a bid for the RBS insurance arm, along with Patrick Snowball, the former operations head of Aviva. CVC Capital Partners, another private equity firm, is the only other potential bidder.
The BoC share sale is the first result of a strategic review launched in November by the new chief executive officer, Stephen Hester. RBS may also sell its Citizens banking business in the United States. The UK government owns £5 billion of preference shares and £15 billion of ordinary stock in RBS, and analysts say that Hester may want to repay this as soon as possible.
The speed of the move underscores the determination of RBS to cash in quickly on a profitable investment, the proceeds of which will help boost its resources. Like other banks around the world, RBS is under pressure to reduce assets and increase loans to local consumers.