Sale of RM illustrates the financialisation of our society

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The unnecessary and underpriced sale of Royal Mail illustrates the financialisation of our society

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The sale of Royal Mail at a heavy discount has highlighted the increasing clout of the financial sector. At least five of the investment banks that served as advisers to the government were also allocated shares on behalf of their asset management divisions for distribution to clients. Meanwhile, Royal Mail is cutting jobs and increasing prices above and beyond what might be reasonable to ensure the sustainability of the postal service. These are now being done to raise profits for the private owners, writes Kate Bayliss.

This week we learned from a Report by the National Audit Office (NAO) that Royal Mail (RM) was sold off at a discount. The big winner is the financial sector. It has now become commonplace for financial capital to be involved in – and profit from – many aspects of economic and social life, as non-financial sectors become financialised. Even some English water companies are owned by private equity funds based offshore, channelling funds through the Cayman Islands.

The significance of the financial sector has become elevated in recent years, not just in the proportion of GDP that it generates but the way in which it is hailed as the fount of wisdom for shaping policy. The Government appointed a syndicate of seven investment banks to advise on the privatisation of RM, and UBS and Goldman Sachs were appointed as the joint global coordinators. Lazard & Co, a firm with reportedly close connections to the government, was appointed as exclusive independent corporate finance adviser.

Many have criticised the sale on the grounds that the price at which 60% of the shares were sold last October was too low. The IPO was 24 times oversubscribed. On the first day of trading, RM’s shares closed at 455 pence, 38% higher than the opening sale price of 330 pence. The share price increased by 72% over the first five months of trading.

Valuing RM is tricky. Arguably, in uncertain circumstances, a low price may have been required to ensure sufficient take up of shares, if that was the objective. However, these advisers also bought shares in RM. At least five of the syndicate investment banks were allocated shares on behalf of their asset management divisions for distribution to clients. These firms then gained from subsequent trading in stocks and the rapid appreciation of the share price (albeit, shares which they held for clients). Goldman Sachs was reported to have sold 4.5 million stocks between 31 October and 11 November 2013, when the RM shares hit their highest which would equate to profit of £12m if the stocks were sold at their peak. This is on top of the £12.7m paid to the syndicate from advising on the sale.

Even with the firewall between the separate divisions of the investment banks, their priorities are clear and there is an obvious conflict of interests. The problem, according to the NAO (p.16), is that there is only a small pool of expertise in this field. To exclude potential advisers that are linked to asset managers “would have constrained the choice of advisers available to it.” State capture by the financial sector is not uncommon. A recent investigation by the House of Commons Committee of Public Accounts highlighted the way that the big accountancy firms advise government on tax policy and then are in a strong position to advise clients as to how to pay less tax. Finance has become so dense that only those that are in it can advise us as to how to manage it. It seems that there is no option other than to put the fox in charge of the hen house.

RM is now largely in the hands of wealthy financial interests, intent on revenue extraction and for whom a stake in RM is a tiny cog in an extensive financial portfolio. Owners with more than a 5% stake include hedge fund TCI, the government of Singapore via sovereign wealth fund, and the GIC (which also has a stake in Yorkshire Water). In addition the new owners include the likes of UBS (Luxembourg) and SA which owns shares on behalf of anonymous clients. Shareholders are hidden behind nominee accounts.

Unfortunately the story does not end with the sale. RM is cutting jobs and increasing prices – both of which might be reasonable measures to ensure the sustainability of the postal service. But now these are being done to raise profits for the private owners. The latest job cuts are expected to deliver cost savings of around £25m in 2014-15. This will add to the wealth of the largely unknown owners, as will the gains from selling the prime London property owned by RM.

It cannot be any wonder that inequality is increasing when the hegemony of finance tramples over all other aspects of social and economic life. There was no need to privatise RM. Many countries run their national postal services via state owned companies (e.g. France, Ireland, USA). Even Belgium’s bpost, which is cited as the model for the UK, is majority state-owned. Arguments of efficiency gains from privatisation are questionable, and are overwhelmed by the inefficiency emerging from the inequitable distributional outcomes.

Note: This article gives the views of the author, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting.

About the Author

Dr Kate Bayliss is affiliated with SOAS, University of London and has been working on public sector reform for over a decade with particular focus on privatisation of water and electricity. She has worked as a consultant for international agencies and NGOs.

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spot on article, confirms the type of society we live in . here is another article that says as much the same.


This week a ground-changing book called How Corrupt is Britain?, edited by David Whyte, is published. It should be read by anyone who believes this country merits its position on the index.

Would there still be commercial banking sector in this country if it weren’t for corruption? Think of the list of scandals: pensions mis-selling, endowment mortgage fraud, the payment protection insurance scam, Libor rigging, insider trading and all the rest. Then ask yourself whether fleecing the public is an aberration – or the business model.

No senior figure has been held criminally liable or has even been disqualified for the practices that helped to trigger the financial crisis, partly because the laws that should have restrained them were slashed by successive governments. A former minister in this government ran HSBC while it engaged in systematic tax evasion, money laundering for drugs gangs and the provision of services to Saudi and Bangladeshi banks linked to the financing of terrorists. Instead of prosecuting the bank, the head of the UK’s tax office went to work for it when he retired.

The City of London, operating with the help of British overseas territories and crown dependencies, is the world’s leading tax haven, controlling 24% of all offshore financial services. It offers global capital an elaborate secrecy regime, assisting not just tax evaders but also smugglers, sanctions- busters and money-launderers. As the French investigating magistrate Eva Joly has complained, the City “has never transmitted even the smallest piece of usable evidence to a foreign magistrate”. The UK, Switzerland, Singapore, Luxembourg and Germany are all ranked by Transparency International as among the least corrupt nations in the world. They are also listed by the Tax Justice Network as among the worst secrecy regimes and tax havens. For some reason, though, that doesn’t count.

The Private Finance Initiative has been used by our governments to deceive us about the extent of their borrowing while channelling public money into the hands of corporations. Shrouded in secrecy, stuffed with hidden sweeteners, it has landed hospitals and schools with unpayable debts, while hiding public services from public scrutiny.
Relying on the World Bank to assess corruption is like asking Vlad the Impaler for an audit of human rights

State spies have been engaged in mass surveillance. And the police, adopting the identities of dead children, lying in court to assist false convictions and fathering children by activists before disappearing, have infiltrated and sought to destroy peaceful campaign groups. Police forces have protected prolific paedophiles, including Jimmy Savile, and – it is now alleged – a ring of senior politicians who are also suspected of the murder of children. Savile was shielded too by the NHS and the BBC, which has sacked most of the those who sought to expose him while promoting people who tried to perpetuate the cover-up.

There’s the small matter of our unreformed political funding system, which permits the very rich to buy political parties. There’s the phone-hacking scandal and the payment of police by newspapers, the underselling of Royal Mail, the revolving door a llowing corporate executives to draft the laws affecting their businesses, the robbing of the welfare and prison services by private contractors, price-fixing by energy companies, daylight robbery by pharmaceutical firms and dozens more such cases. Is none of this corruption? Or is it too sophisticated to qualify?

Among the sources used by Transparency International to compile its index are the World Bank and the World Economic Forum. Relying on the World Bank to assess corruption is like asking Vlad the Impaler for an audit of human rights. Run on the principle of one dollar, one vote, controlled by the rich nations while operating in the poor ones, the bank has funded hundreds of white-elephant projects that have greatly enriched corrupt elites and foreign capital while evicting local people from their land and leaving their countries with unpayable debts. To general gasps of astonishment, the World Bank’s definition of corruption is so narrowly drawn that it excludes such practices.

The World Economic Forum establishes its corruption rankings through a survey of global executives: the beneficiaries of the kind of practices I’ve listed in this article. Its questions are limited to the payment of bribes and the corrupt acquisition of public funds by private interests, excluding the kinds of corruption that prevail in rich nations. Transparency International’s interviews with ordinary citizens take much the same line: most of its specific questions involve the payment of bribes.