In the Royal Mail sell-off scandal, taxpayers have been robbed by the very piranhas who caused the crash By Alex Brummer Having propped up the Royal Mail for generations, ordinary taxpayers deserved the chance to share fully in the expected privatisation bonanza Seldom in financial history has a share offer been so scandalously misjudged as that of the Royal Mail. If this had been the flotation of a speculative oil firm working off the Falklands Islands, it might have been regarded as another financial scam in a long line of such frauds dating back to the South Sea Bubble in 1720, when Britain was plunged into economic turmoil by wild investments. The Royal Mail, however, is an institution that has been at the centre of British national life since it was founded by Henry VIII in 1516. It proudly carries the word "Royal" in its name and has the unique distinction of offering a service with the imprimatur of the Queen's head on its main product, the postage stamp. Bringing such an integral part of the nation's economic and national security to the public markets should have had "Handle With Care" written all over it. What's more, having propped up the Royal Mail for generations, ordinary taxpayers deserved the chance to share fully in the expected privatisation bonanza. But the absymal truth is that the first direct privatisation of a state corporation for two decades couldn't have been more badly botched. The public and small investors having been promised that they could have a stake in the company through the offer of shares, found that their allocation had been shamefully squeezed. The sale was handled by Goldman Sachs, the giant Wall Street investment bank that is notorious internationally for its greed, which gave priority to its favoured clients in the big City institutions - banks, hedge funds and portfolio managers. Small investors were left with less than 30 per cent of the available shares. Not only that, it is now clear that the offer price was ludicrously undervalued. At the time of the sell-off in September, shares were offered at 330p. As predicted by most City analysts, the price soared and it kept on climbing until we have now reached the dizzying height of 565p. The result is that while shareholders are £1.2 billion richer, the Treasury could have got that extra money to bolster Britain's deeply-damaged public finances if the offer price had been put at a higher - more realistic - level. What is even more galling is that the government ministers behind this fiasco portray themselves as some of the most business and City-savvy in the Coalition. For example, Business Secretary Vince Cable, who insultingly describes the rise in the Royal Mail share price as "froth," is a former chief economist of Shell who makes much of his business credentials and was the scourge of the rotten banks who were responsible for the biggest financial crisis since the Great Depression. Business Secretary Vince Cable, who insultingly describes the massive rise in the Royal Mail share price as 'froth,' is a former chief economist of Shell But when it came to a practical matter of the Royal Mail, he left the handling of its flotation to those same City sharks who he once criticised so harshly. Equally complicit is Michael Fallon, the Tory minister parachuted into the Department for Business to give his hard-headed City experience. Having worked with the respected City broking firm Tullett Preborn before becoming a minister, he ought to have had a clear understanding of the true value of the Royal Mail. But he failed miserably to get the best price for taxpayers. Ministers, in the past, have resigned for less heinous and costly mistakes. Instead of contrition, all we have heard from these ministers are pathetically feeble excuses for the gross undervaluation. The most preposterous of these is that they feared the postal union would call a strike in protest against the privatisation - even though the workforce was given 10 per cent of the company's shares to make them co-owners of the business. Michael Fallon, the Tory minister parachuted into the Department for Business to give his hard-headed City experience, failed miserably to get the best share price for taxpayers In any case, if ministers were really worried about the threat of staff walk-outs, the prudent response would have been to postpone the offer, rather than rush to market, in what came to look like a fire-sale. This would not have shaken public confidence because stock market floats are often delayed as a result of unexpected economic events, such as the recent American government shutdown. While there are disturbing questions surrounding the Government's choice of city advisers, Lazard, who obviously misjudged the value of the offer, the main blame for the fiasco must be laid firmly at the door of the three global investment banks entrusted with co-ordinating the offer and who were responsible for marketing and distributing the shares - Goldman Sachs, the Swiss bank UBS and Barclays. Why on earth did Dr Cable entrust such an important public flotation to three organisations who have all fallen foul of regulators in the aftermath of the financial crisis and been forced to pay hundreds of millions of pounds in fines for wrongdoing? Their failings included Goldman Sachs misleading investors in the run-up to the sub-prime crash (for which it had to pay a record £343million penalty), Barclays traders trying to rig the key London inter-bank lending rate called Libor (with the bank fined £290million) and foreign exchange manipulation. Yet government ministers rewarded these piranhas with the responsibility of organising a major financial operation which was of crucial interest to the country and to millions of hard-pressed taxpayers, who have already lost huge sums as a result of the greed and criminal irresponsibility of casino bankers. In the days leading up to the sell-off, most City commentators predicted that the Royal Mail was a good bet and that dividends would rise at least at the rate of inflation in future years. On the day when the shares first hit the market and began their climb into the stratosphere, I had lunch with a partner of a small and enterprising City stockbroking firm. He was incandescent about the way the allocation had been handled. Unable to get enough shares for his own clients, he was furious that big hedge funds and sovereign wealth funds had been promised the biggest slice of the cake. It was no surprise, therefore, that when the names of the buyers of Royal Mail stock were first revealed, the biggest turned out to be Chris Hohn of the TCI hedge fund, with 6 per cent. Rather than try to attract long-term investors by spelling out how the Royal Mail could thrive in the private sector, the flotation seems to have been simply used to lure short-term investors who want a quick killing Hohn, one of Europe's most activist investors, was once described as a "locust" by the German government after he tried to take control of the Deutsche Borse, the German stock market. Instead of seeking to build a base among big UK institutional investors such as Standard Life, L&G, Invesco Perpetual, M&G and Schroder - which have kept their shares for the long term - it was clear that these piranhas offered the bulk of the shares to maverick hedge funds, such as Landsdowne Partners and sovereign wealth funds, with whom the governments" advisers (such as Goldman Sachs) had a good relationship. These are precisely the kind of investors that the Royal Mail does not need on its books. They have no loyalty to Britain and may well sell out at the earliest opportunity. The truth is that the Royal Mail - and British taxpayers - deserved much better. The firm remains a valuable national asset in a modern world where there is fierce competition for parcel delivery services. But Dr Cable and his colleagues should hang their heads in shame. Rather than try to attract long-term investors by spelling out how the Royal Mail could thrive in the private sector and become a consumer and business champion, the flotation seems to have been simply used to lure short-term investors who want a quick killing. For their part, the big City firms who advised them - and gleefully expect millions of pounds in fees and yet more millions in commissions and bonuses - should be required to return this money and never again be let near a government privatisation. One MP yesterday likened letting Goldman Sachs advise on the Royal Mail flotation to asking for help on security from Great Train robber Ronnie Biggs. He wasn't far wrong.