LONDON/BRUSSELS Feb 21 Britain's plan to free
Royal Bank of Scotland from an obligation to sell more
than 300 branches risks a clash with the European Commission
weeks before the government is due to start formal talks to
leave the trading bloc.
European regulators originally told RBS to sell the branches
by 2013 to prevent the state-backed bank, Britain's largest
small-business lender, from having an unfair advantage. The sale
was one of the conditions attached to RBS's 45.5 billion pound
($55.87 billion) state bailout in the financial crisis.
RBS has spent more than 1.5 billion pounds and seven years
trying to spin-off the branches - which were to be branded
Williams & Glyn - but has struggled to separate them from its IT
Now British finance minister Philip Hammond is pushing for
RBS to be let off the EU's demand to sell the branches in return
for providing around 750 million pounds ($931.73 million) to
help to boost competition in banking.
For the plan to work, the EU would have to approve changes
to the terms of RBS's government bailout, which included the
sale of the branches and other divestments.
The British government and the European Commission say they
have had "constructive" discussions over the matter.
RBS shares surged to a one-year high on Monday as investors
bet the proposals would be accepted. An end to the bank's state
aid commitments is seen as a big milestone on the path towards
the bank's recovery and the restoration of dividends.
But the plan still needs to be vetted by the European
Commissioners, who may reject the British government's proposals
and seek to impose tougher conditions on RBS to free it from the
branch sale obligation, according to sources familiar with the
The Commission will have to assess whether the measures that
RBS will take are equivalent to selling the branches, a process
likely to take at least several weeks.
On paper, analysts said the proposals looked to be very much
in the bank's favour, given it was expected to have had to sell
Williams & Glyn with a hefty writedown.
The 750 million pounds RBS is proposing to spend on
alternative measures to help so-called challenger banks and
boost competition is substantially less than the charge that
many had expected it would have to book for a distressed sale,
Sandy Chen, an analyst at Cenkos Securities, said.
EU officials said on Monday that they were still waiting for
formal notice of RBS's plan, but that it would go through
"In order to gather information on this proposal, the
Commissioner responsible for EU competition policy, Margrethe
Vestager, will in the coming weeks propose to the college of
commissioners to open proceedings," a spokesman said on Monday.
The Treasury said in a statement the plan provided a
blueprint to increase competition and any final decision about
what RBS must do would be made following the Commission's
investigation and reaction to the plan from smaller banks.
RBS declined to comment.
The British government will argue that the new plan would
deal with the state-owned bank's EU obligations more quickly and
with more certainty than selling off the branches.
The government will also say that the current plans would
boost competition to a larger number of smaller banks, according
to government officials.
The Treasury began working on an alternative plan in the
autumn soon after RBS abandoned an idea to build an independent
technology platform for Williams & Glyn, according to people
with knowledge of the talks.
If a deal is reached it would remove one of the two
remaining uncertainties hanging over RBS - the sale of the
branches and an expected multi-billion dollar fine in the United
States for claims that RBS mis-sold mortgage bonds in the run-up
to the global financial crisis.
Peter Hahn, a professor of banking at the London Institute
of Banking & Finance, said RBS had endured almost a decade of
losses since it was bailed out in 2008 and the EU should show
RBS some mercy.
"The days of arrogant RBS are in the past," he said. "Now
when you mention their name there is nothing but sympathy."
($1 = 0.8055 pounds)
(Additonal reporting by Foo Yun Chee. Editing by Jane Merriman)