Royal Mail sale delivers riches to wrong people

[Budfrog]

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Royal Mail made its stock market debut on Friday and frenzied trading sent the shares soaring, closing the day at 455p, or 38 per cent higher than the 330p a share at which the Government sold them.

While ministers may regard the flotation as a success, for many it left a lot to be desired.

One of the main complaints has to be how, having made such a stark appeal for members of the public to buy the shares, more than 400,000 people had their allocations massively curtailed.

About 93,000 private investors who applied for the minimum £750 worth of shares (equal to 227 shares) got what they ordered. However those who applied for between £750 and £10,000 of shares received, at best, half of what they wanted. A further 35,000 who applied for more than £10,000 of shares got nothing at all.

Much of the appeal of Royal Mail shares is down to the fact that the firm is offering to pay shareholders at least six per cent in dividends.

That is an enormous amount compared to the meagre returns people are getting from savings accounts, bonds and other investments.

Given how desperate people are for suitable investments to provide them with an income, it is shocking that the Government would do this, especially when you consider that official policies, such as keeping interest rates at rock-bottom and quantitative easing, are why people are getting such pitifully low returns from their savings.

On the other hand, institutional investors saw their allocation of the deal increase.

As things stand, City investment groups are laughing all the way to the bank... and at the taxpayers' expense.

Business Secretary Vince Cable, who oversaw the privatisation, is adamant that Royal Mail was sold at the right price. The share price tells a different story.

INVESTMENT banker friends tell me that when you float a company, you normally price the shares so that they rise by between five and seven per cent when they start trading on the stock exchange, if only because you want people to trust you and back your next deals. Anything else is being charitable.

Given that the Government was advised by some of the sharpest deal-makers in the City, the fact that the shares rose 38 per cent on day one indicates that someone in power made the wrong call.

If they continue to rise, Mr Cable's insistence that the deal was done at the right price will be as believable as Gordon Brown's claims that Britain got a good deal when he sold our gold reserves.

Chris Kitchenham, executive director at stockbrokers Walker Crips, said: "The pricing always looked a touch low and the share issue was always going to be oversubscribed, which is not surprising given the six per cent prospective yield.

"The initial pricing is likely to raise questions again, as investors were clearly willing to pay more than the initial 330p."

Also, while Mr Cable claims that Royal Mail shares were sold to "responsible, long-term investors", Friday's turbocharged dealing tells a different story.

About 290 million Royal Mail shares, more than half of all the shares in the company, changed hands during the day's trading. That is even more remarkable when you consider that there were restrictions on buying and selling, which will not be lifted until Tuesday morning.

That so many changed hands on the first day does not sound like many City investment groups were intent on holding on to them for the long term.

In fact, if Mr Cable was really keen on ensuring the shares were in the hands of long-term investors, he would have sold more of them to pensioners and savers.

What this sell-off does show is that the appetite for privatisations and shares in general is stronger than previously thought. That bodes well for when the Treasury decides to offload its stakes in Lloyds Banking Group and Royal Bank of Scotland. Lloyds could be sold entirely before the next election and RBS is likely to go afterwards. CMC Markets analyst Michael Hewson said: "The fact that small investors were able to feel confident about participating in the Royal Mail flotation, and appear to have done well from it, has to be good for stock market confidence in the longer term and could augur well for when the Government looks to sell RBS and Lloyds."

If the Treasury is to successfully offload its RBS and Lloyds shares, both privatisations will have to be handled better than Royal Mail was.
Reflecting on last week's action and what may be to come, Magnus Wheatley, of stockbroker Charles Stanley, said: "Royal Mail was massively oversubscribed. We had retail investors come walking in off the street. We were fully resourced, we had people in call centres working overtime and we still had to stop taking orders because of demand.

"The level of demand was a big eyeopener. I think if the Government price Lloyds and RBS right, they will be able to get them away sooner rather than later."

If the Treasury is to successfully offload its RBS and Lloyds shares, both privatisations will have to be handled better than Royal Mail was.

WHEN IT is time to sell off its bank shares, the Government must give the man in the street a fairer crack of the whip. Demand for both is likely to be extremely high, as they are nearly back to full health and will probably pay investors huge dividends, which are desperately needed by savers and pension funds.

More importantly, the Treasury must sell its RBS and Lloyds shares at the right price.

Seeing as taxpayers spent more than £65billion buying its stakes in both banks as part of their bailouts, it is imperative that we recover that money. If the shares are sold off too cheaply, or at a loss, it would be a national scandal.

We must hope that ministers learn from the mistakes made with the Royal Mail sell-off. If not, it will cost us.

'Vince Cable says they were sold at the right price but a 38 per cent rise tells a different story'

[fishtank]

Given that the Government was advised by some of the sharpest deal-makers in the City, the fact that the shares rose 38 per cent on day one indicates that someone in power made the wrong call.

I think if you're trusting some of the sharpest deal-makers in the City to give you impartial advice it's not difficult to see where everything started to go wrong.

It will be interesting to see what monday's trading will bring,at some point someone will blink and the profiteering will start which could trigger a mass dump and the price to plummet.

[RobertT]

It will be interesting to see what monday's trading will bring,at some point someone will blink and the profiteering will start which could trigger a mass dump and the price to plummet.

Probably good opportunity to buy more.

[fishtank]

It will be interesting to see what monday's trading will bring,at some point someone will blink and the profiteering will start which could trigger a mass dump and the price to plummet.

Probably good opportunity to buy more.

If you're a long term investor and/or more interested in the dividends it probably would be which means that we might actually start to see a pooling of the shares and someone emerge as Royal Mail's medium to long term major shareholder.

[mickeymacca]

I think it is the term schaden-freude or something where you derive pleasure from the misfortune of others, not suggesting I wholey agree with that sentiment with regard to investors but there is something I am finding a little bit unpalatable about all emphasis about how much money people are making/ could make.

I suppose that is the nature of investing and the stock markets, but it was n't long ago that bankers were public enemy number one and the immoral way in which they made there money was scrutinised and vilified, its interesting to see how attitudes change over a short space of time. I am not making a judgement about those that have invested in extra shares (that is none of my business)........

[mickeymacca]

It will be interesting to see what monday's trading will bring,at some point someone will blink and the profiteering will start which could trigger a mass dump and the price to plummet.

Probably good opportunity to buy more.

Or bet on the price to go down? is short-selling still allowed?

[RobertT]

In my opinion I can see a lot of the general public selling their shares early to make a quick profit and I think the institutional investors are probably more likely to snap them up because of the 6-7% yield. It's when/if that yield goes down significantly that we might see the institutions selling up and the share price nosediving which could be the time for a potential major shareholder to make their move.

[RobertT]

It will be interesting to see what monday's trading will bring,at some point someone will blink and the profiteering will start which could trigger a mass dump and the price to plummet.

Probably good opportunity to buy more.

Or bet on the price to go down? is short-selling still allowed?

As far as I know it is still allowed yes.

[fishtank]

I think the public don't get to trade until tuesday.
Paddy Power are predicting crazy numbers for tuesday only giving 15/8 for the peak share price range to make 501p-550p.
If the shares break £5 Vince Cable is going to have kittens.
What a f**k up.

[mickeymacca]

In my opinion I can see a lot of the general public selling their shares early to make a quick profit and I think the institutional investors are probably more likely to snap them up because of the 6-7% yield. It's when/if that yield goes down significantly that we might see the institutions selling up and the share price nosediving which could be the time for a potential major shareholder to make their move.

Well I think we are primed for a sustainable period of profitabilty, which was one of my major issues regarding privatisation. I hope we are both right and the keeps a major shareholder at bay for the long term........

[woody57c]

Was so good to see that Vince & the boys had got it right with the city investors who where in it for the long term .......not.
Thought I would take a quick look at London stock exchange to see who was selling there shares on first day of trading imagin my total and utter surprise . To see one trader selling 2,200,000 shares that at my reckoning cost him/her £7,260,000 at £3.30 per share only to sell them at £4.45 for £9,790,000 nice days work you w#,(#r.