Investment Banks summoned by MPs to an inquiry into privatisation of Royal Mail Shares

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By Mark Kleinman, City Editor

Half a dozen of the City's leading investment banks have been summoned by MPs to an inquiry into the privatisation of Royal Mail, Sky News has learnt.

The Business, Innovation and Skills (BIS) Select Committee has contacted the banks in recent days to ask them to attend sessions later this month as it continues its probe into whether the sell-off of the postal operator was undervalued.

Insiders said on Friday that Goldman Sachs and UBS, which led the privatisation, would send representatives. Four banks that did not work on the deal but which suggested that Royal Mail could be worth much more than the £3.3bn sale price - Citi, Deutsche Bank, JP Morgan and Panmure Gordon - have also been asked to send a senior banker.

Vince Cable, the Business Secretary, Michael Fallon, the minister who spent months planning the sale, and a representative from Lazard, the Government's independent adviser, will appear at a separate session, sources said.

News of the twin hearings comes as I understand that the Government prepares to exercise in the coming days a so-called 'greenshoe option' which exists to allow companies which list the option of selling additional shares in the event of sufficient demand.

In Royal Mail's case, the 7.8% 'greenshoe' stake had already been allocated to investors. Ministers' likely decision to exercise the option means only that the Government is surrendering its right to buy the additional shares back, which would have been necessary if the share price had fallen after the flotation.

Royal Mail shares were trading late Friday morning at 558p, well over 50% above the sale price.

Sky News revealed last month that one bank, JP Morgan, had pitched a valuation of almost £10bn for Royal Mail when it was vying to win a mandate to act on the share sell-off earlier this year.

Citi and Deutsche Bank also pitched valuations well above the £4.1bn point at which the shares were sold, according to sources at those banks and in Whitehall.

Insiders said that Citi had suggested an upper valuation of £7.3bn, while Deutsche Bank argued that Royal Mail could be worth between £6.4bn and £6.9bn.

A BIS spokesperson said last month: "A total of 21 banks pitched in May for the business of acting for the Government on the sale of Royal Mail as part of an extensive procurement process. Seven were successful.

"The proposals included indicative valuations of the company based, in many instances, solely on information already in the public domain.

"Banks made their own assumptions of Royal Mail’s future performance. The range was wide with the median around £3.6bn taking into account [an] IPO [initial public offering] discount.

"The banks' appointment process was overseen by Lazard as independent advisors to Government.

"The banks' proposals came months before any threat of strike action by the unions, financial market uncertainty in the United States and other factors which the Government has already said were taken into consideration in setting a price for the company in September."

None of those contacted by the BIS committee would comment