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Royal Bank of Scotland Stock Down as Government Sells Stake

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The British government sold 7.7% stake in Royal Bank of Scotland (RBS - Free Report) , in sync with its efforts to return the bank to private ownership. The sale resulted in substantial loss for the taxpayers, owing to a significant drop in the value of the stock since the time government had bailed out the bank during the financial crisis.

Following the announcement of the news, the bank’s shares on NYSE have fallen nearly 2% in the pre-market trading. So, what was the reason for this decline in share price?

The disposal returned about £2.5 billion to the taxpayers as the deal was completed at 271 pence per share. However, this stake sale resulted in loss of £2.1 billion as the Royal Bank of Scotland’s shares were purchased for 502 pence at the time of the bailout. As per rules of the sale, the government cannot sell any more share for the next 90 days.

The government rescued Royal Bank of Scotland from collapsing by paying £45.5 billion, which gave it 70.1% ownership in the bank. The government now plans to sell the remaining 62.4% stake over a period of five financial years, beginning this year.

The stake sale was delayed due to the impending settlement with the U.S. Department of Justice over deceptive mortgage marketing strategies. The matter was resolved in May 2018 by the bank, as it agreed to pay £3.62 billion to the regulator. This cleared the way for the government to begin the sale of its stake and is likely to help Royal Bank of Scotland to function normally.

Royal Bank of Scotland announced that it will resume dividend payments post the settlement, which was a relief to its shareholders. Also, the bank's return to fully-private ownership will enable its share price and operations to recover speedily.

Britain's finance minister, Philip Hammond informed, "This sale represents a significant step in returning RBS to full private ownership and putting the financial crisis behind us."

Notably, over the past year, shares of Royal Bank of Scotland have gained 13.7%, outperforming 3.1% rally for the industry.

Royal Bank of Scotland currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in the same space are Credicorp Ltd. , Banco Santander Chile (BSAC - Free Report) and The Bank of N.T. Butterfield & Son Limited (NTB - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the last 60 days, the Zacks Consensus Estimate for Credicorp has been raised marginally for the current year. The company’s share price has jumped 33% in the past year.

In the last 60 days, Banco Santander Chile has witnessed stable earnings estimates for 2018. Its share price has surged 33.6% in the past year.

Bank of N.T. Butterfield & Son’s shares have gained 44.1% in a year and its earnings estimates for 2018 have moved up 3.5% in the last 60 days.

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