RBS Battles Enforced Break-Up

Monday, November 2, 2009
By SHP

The beleaguered Royal Bank of Scotland has until the end of this week to agree an acceptable roadmap with both the UK Government and the European Commission.

Since taking on unprecedented Government support, CEO Stephen Hester has been battling to reconcile the interests of his shareholders and those of the Government and EC. 

williams and glynsIt has been known for some time that RBS would be likely to sell off over 300 RBS branches in England and NatWest branches in Scotland. 

This will be achieved by resurrecting the defunct Williams & Glyn’s brand and putting the resulting business on the market.

As we reported in September, Chancellor Alistair Darling wants any divestments by the bailed-out banks be sold to new entrants, in order to increase competition.

Tesco and Virgin are both likely to be interested in any retail banking business that becomes available via RBS, Lloyds or Northern Rock. 

Both companies are in the process of positioning themselves for full entry into the UK retail banking market – Tesco has just announced 1,000 new jobs in Newcastle in its Finance arm, while Virgin has applied to the FSA for a banking licence.

What is more worrying for Hester is the likley forced sale of its Insurance arm (home to household names such as Direct Line, Churchill and Green Flag) and/or the US bank Citizens.

citizensThe Insurance division had been up for grabs for a considerable time but was withdrawn from sale by Hester as an acceptable bid was not received.  A forced firesale of the business is likely to realise a smaller sum.

Citizens is seen as a core business by Hester.  RBS has built the brand by making a number of small, regional acquisitions over the years, and the business offers welcome diversity to the parent company.

However, EC competition commissioner Neelie Kroes may demand that RBS divest either or both of the businesses in order to justify the state aid it has recieved.

In an announcement to the stock exchange this morning, RBS confirmed that discussions were ongoing over the terms for participation the Government’s Asset Protection Scheme (APS) and the state aid measures demanded by the EC. 

In the release, RBS stated that “With respect to the EC, negotiations between HM Treasury and the EC are in their final stages and will include some divestments not initially contemplated.  It remains RBS’s goal that any required divestments do not threaten its recovery plan which is already underway.”

RBS will release their third quarter results on Friday 6th November, and has committed to announcing the outcome of talks with the Government and the EC by this date at the latest. 

The company has seen its shares slump back below 40p, falling by over a third since late-August, as uncertainty over its future continues to spook the City.

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