(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By George Hay
LONDON, June 20 (Reuters Breakingviews) - Don’t bet on a
good bank/bad bank split at Royal Bank of Scotland (RBS.L).
George Osborne, the UK chancellor, used his Mansion House speech
on June 19 to announce a study on the possible hiving off the
state-held lender’s ropey assets. It doesn’t mean that will
happen when the Treasury reports back in the Autumn.
Splitting RBS has been batted about since 2010, when the
idea of separating roughly 150 billion pounds of non-core assets
was considered. The logic was that the remaining good bank would
be more likely to lend, and easier to sell at a higher multiple.
The government ultimately balked, fearful of issuing more gilts
on the scale needed to fund a separate silo of bad assets. That
would have increased national debt just as the euro zone crisis
was beginning to worry markets.
Bad bank advocates, such as the outgoing Bank of England
Governor Mervyn King and the Parliamentary Commission on Banking
Standards, argue that the same logic is relevant today, even
though the stock of non-core bad assets has shrunk to 40 billion
pounds. With the euro zone less fractious, the UK may be more
willing to take on more debt. RBS could even throw in Ulster
Bank and investment banking assets, pushing the offloaded entity
up towards 100 billion pounds.
It remains hard to argue that such a plan could meet the
objectives Osborne outlined in his speech. For a bad bank to be
“in the interest of UK taxpayers”, the sale price of the good
bank would have to outweigh any associated separation costs.
These could involve the government having to take on losses on
bad assets over and above where they are provisioned, plus
paying over 6 billion pounds to buy out minority shareholders.
Osborne last night swore that no new taxpayer money would be
committed during the process.
A spruced-up RBS lending boldly would benefit the economy.
But if the issue is lack of demand, splitting from the bad bank
will make little difference. Given that Osborne now appears in
less of a hurry to privatise the bank, the easier and safer path
would be to wait for a recovering economy to improve RBS’s value
over time. That’s why the chancellor’s statement just looks like
a way to keep bad bank bulls happy.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- The UK government is to investigate whether it should
split toxic assets at Royal Bank of Scotland out into a separate
bad bank, Chancellor George Osborne announced in his Mansion
House speech on June 19.
- Osborne said a bad bank would be established if it
supported the British economy, was in the interests of
taxpayers, and if it accelerated the return to private
ownership. If the government believes it will not, it will not
- A decision will be made in the Autumn. Osborne also said
he would examine how to get rid of RBS’s dividend access share,
which blocks dividends from being paid.
- Osborne also said that RBS was “some way off” returning
the bank to the private sector.
- RBS shares were trading at 315 pence on June 20, down 1.3
percent in a falling market.
- Reuters: Britain to look at RBS split, start Lloyds sale
- For previous columns by the author, Reuters customers can
click on [HAY/]
(Editing by Pierre Briançon and Sarah Bailey)
Keywords: BREAKINGVIEWS RBS/
(C) Reuters 2012. All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.