Royal Mail Shares

An IPO failure results in the seller achieving a price of zero, or a very low price. The government swapped the risk of getting very little for a guaranteed price that might have been too low. In retrospect, it did. But decisions like these are much easier to make with hindsight. Good luck the next time you have a multi-billion pound business to sell off and public scrutiny of your every move.

 

Sell to the highest bidders. No bidders? Then drop the price.

 

Huh? It didn't need a 'guaranteed price'.

It's a bit like when you get different estate agents to value your home to sell. You'll get different prices. Only if you want a quick sale would you apply an unambitious asking price.

I don't see why the Royal Mail had to be a quick cheap sale.

 

There was no such risk given several 'reputable' banks valued it much higher.

 

The market determines the price. So get people to secretly bid for them and sell to the highest bidders.

 

Very interesting article regarding the banks

http://www.independent.co.uk/news/u...-fortune--and-lost-taxpayers-1bn-9226885.html

 

And they came out and said so beforehand? Oh, wait, no, they didn't. And hd they had to pay that price there is nothing to say they would have actually taken it on.

It had to be succesful and seen to be succesful. Trading the best possible price for a measure of success was a legitimate option.

 

Oh yes they did. You really ought to get your facts right before commenting.

 

Not the ones that were actually bidding.

 

I agree Calum, however there are Actuaries who specialize in Investments and work at Investment Banks and this kind of staff will just require them to apply themselves a little if they price more Derivatives than equities daily say.

I am in South Africa and have friends who do this everyday who are studying towards Actuarial Fellowship with full employer study support. (And it's very common in SA, Actuaries are moving more into wider areas and doing it succesfully)....the CEO at the Investment Bank I am talking about is an Actuary.

Again, for them its about selling their skills. Valuing shares and property isn't hard staff, and we can do it better than other people. It's about competing with them, the modern Actuary isn't just an older male at an Insurance company worried about mortality and little about Capital Markets or let alone Markets.

 

Yes, quite agree with this. My point is more generally about acting within your competence, but of course there are plenty actuaries for whom this would be bread and butter stuff.

 

I understand why you say it is good to work within your 'competence' but I don't agree with this way of thinking at all. This is one of the biggest issues I see in the UK; it can be a challenge even for seasoned Actuaries to get roles in slightly different roles in the same industry. It actually devalues the whole education system and stunts development.

The only way to widen your 'competence' is to just get involved and learn by doing it. Actuaries should be competent/educated enough to be able to 'find their way'.

One FACT is there was a time when none of the so called 'experts' had any experience in their field.

What we see in the world wouldn't exist today if everybody worked within 'their competence'. We should all be a little daring and take a risk from time to time. Growth is uncomfortable but necessary if society and humanity is to move forward.

 

That's the thing, pre IPO there is no objective 'market'. The market is determined OTC by visiting large finance houses and getting their views. The highest bidder is unlikely to have appetite to take on the entire issue and so the price will have to drop until the total amount sought is reached.

Question for you: If you were prepared to pay £2X but realise others are only paying £X what would you (the highest bidder) pay?

Addressing your final point about secret bidding:

Here's the thing; the IPO process has been long established; the Government lack the experience & expertise to force through a non-standard IPO approach.

The big issue with the Royal Mail process (which I believe you are likely to agree) was the fact that they didn't revisit the table once they saw it was 24 times oversubscribed.

That should have been a BIG hint that the price was too low!

 

None of these excuses convince me. They sold assets at a knockdown price to their City mates for a quick profit. Taxpayer loses out. If that oversubscribed then highest bids should get. I completely reject excuses the Govt 'lack experience and expertise' as they could hire a bank to sort it out for them. Clearly they were more interested in a cheap sell off to their City mates.

 

They did hire bankers to work on their behalf . We are not in disagreement at rejecting excuses; I am adding a practical element to the debate.

Government/Public Sector lack knowledge and common sense in many practical areas and so are taken advantage of. I've heard of cases where PFI contracts put the cost of replacement light-bulbs at £750 a pop.

This isn't the first IPO (nor country) to have had issues (Private companies are put through the same process). Pay sufficiently high salaries and benefits to get people with the know-how on board or leave as is and stop complaining (not directed at you personally).

 

It happens regularly with IPOs. One of the biggest IPOs in history was Visa, and their share price jumped up 30% on the first day of trading after the IPO, so they were undervalued too. It doesn't necessarily mean there was a conspiracy.

The main reason why it tends to happen is because companies (or in this case, the government) have to get investment banks to help them value the company to set an IPO price. It's obviously in those banks interests to be "conservative" with their figure, so that they can pick up lots of shares at a cheaper price.

I'm with muguono, I think it's more a case of the politicians being taken advantage of by the banks rather than some plot by politicians to take taxpayer money for themselves.

But either way, in the grand scheme of things it's small potatoes. Our government spends £2bn a day, the fact that some IPO has cost taxpayers a few hundred million is really a rounding error on total annual spend. Yes, it obviously would have been better if they had gotten more money, but if you want to save a few hundred million there's plenty of useless government departments I would cut rather than worrying about getting the right price on this IPO.

 

That's corrupt.

Oh come on, how much evidence do you need those two groups of people are well in it together? Do you seriously think they work in the public interest?

No it's billions. JP Morgan valued it at almost £10bn but sold for £3.3bn.

My whole point in this thread is to ask: Where were Actuaries? Was anyone from our esteemed Profession involved in this? Why couldn't our Profession have offered more sensible valuations than the corrupt banks?

 

It's business. Yes it's also highly unethical but that doesn't mean it doesn't happen though.

And the current market cap is £5.5bn (which is what the market views it at, not one individual bank), so if they had used JP Morgan's valuation then they probably wouldn't have sold any shares at all.

Lots of actuaries work in investment banks, so it could well be that some actuaries were involved in producing the valuations, although I doubt it since actuaries are usually only there to value insurance companies.

Investment banks are the experts in valuing companies, the profession could have made an attempt at producing "better" valuations but I doubt anyone would have paid attention to us over investment bankers.

 

Government shouldn't entertain such 'business' practices which rip off the taxpayers.

But they do. If you haven't noticed there is a bit of a revolving door between politics, media, regulators and banks.

 

The whole point is that these investment bank 'experts' are supposed to have a good idea what it's worth. That you suggest Actuaries were involved damages the Profession's credibility even more.

 

Well maybe this is where Actuaries should make a move into since it seems the bankers' valuations are corrupt and self-serving.