Goldman Sachs To Advise UK On Bank Sales

Goldman Sachs (NYSE: GS-PB - news) is to advise the Government on the sale of its remaining stakes in Britain's bailed-out lenders at the same time as one of its divisions tries to acquire billions of pounds of bank assets from the taxpayer.

Sky News has learnt that Goldman was hired as the privatisation adviser to UK Financial Investments (UKFI) just days after George Osborne announced that he would begin selling the state's shares in Royal Bank of Scotland (LSE: RBS.L - news) (RBS) within months.

Goldman's appointment may prove to be controversial given criticism of its role advising the Treasury on the nationalisation of Northern Rock in 2008, and its securities division's interest in buying Granite, a £13bn mortgage portfolio put up for sale by the Chancellor earlier this year.

Underlining the web of relationships managed by investment banks, the Wall Street giant worked with Bradford & Bingley on its attempts to stave off collapse in 2008, and attempted to broker a rescue deal led by TPG - one of the firms that Goldman is now partnering with in an effort to buy the Granite assets.

To add a further layer of complexity, Goldman will be advising UKFI on the sale of its shareholding in RBS, while also competing against RBS as a rival bidder in the Granite auction.

Goldman will replace JP Morgan as UKFI's privatisation adviser, and will assist the Treasury agency with its plans for placing billions of pounds of shares in Lloyds Banking Group and RBS.

Sources said Goldman - like JP Morgan before it - would be paid for its work with UKFI, although that may involve a discount to its usual commercial fee, in line with much of the work done for the Government on asset privatisations in recent months.

The Conservatives committed during the General Election campaign to launching a retail offering of Lloyds shares within 12 months, with bonus shares offered to investors who retain their stakes for a minimum period.

Outlining his plans for RBS in a speech at the City’s Mansion House last week, Mr Osborne described the lender as "the hardest nut to crack", adding:

"I was not responsible for the bailout of RBS or the price paid then for shares bought by the taxpayer: but I am responsible for getting the best deal now for the taxpayer and doing whatever I can to support the British economy.

"There is no doubt that starting to sell the Government’s stake in RBS is the right thing to do on both counts."

The Chancellor pointed to advice from the investment bank Rothschild and Mark Carney, the Bank of England Governor, that further delaying the sale made little sense, even though a disposal of taxpayers' 78% stake in RBS at the current share price would result in a £7bn loss.

Rothschild's report suggested that when fees paid to the Treasury by rescued banks were taken into account, taxpayers could make an aggregate £14bn profit if the remaining stakes in Lloyds and RBS were sold at their current levels.

The appointment of Goldman comes as RBS overhauls its own City relationships, with Bank of America Merrill Lynch expected to replace UBS (NYSEArca: FBGX - news) as one of the taxpayer-backed lender’s corporate brokers.

Jim O'Neil, a respected investment banker who previously ran UKFI, will be among the key figures overseeing the relationship if the move is confirmed.

Spokesmen for both UKFI and Goldman declined to comment on Thursday.