RBS and Lloyds outline plans to go private

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THE charm offensive by Britain’s two part-nationalised banks will continue this week as Lloyds Banking Group and Royal Bank of Scotland attempt to convince investors they are ready to revert to 
private ownership.

The banks are expected to tell shareholders at annual general meetings in Edinburgh that they are on the road to recovery.

Questions remain over a number of issues, including troubles that both have encountered in the forced disposal of bank branches.

The UK government – which owns 81 per cent of RBS and 39 per cent of Lloyds – is keen to sell off at least part of those stakes before the general election in 2015.

The banks in turn have obliged with talk of growing financial fitness, particularly RBS chief executive Stephen Hester, who last week described the group as being “pretty close to a normal bank”. RBS has reportedly begun sounding out potential buyers of its state-held stake.

One analyst said: “They are clearly at pains to make themselves attractive to the boys in the City.”

Having released its first-quarter results earlier this month, RBS will have little to add by way of figures at its AGM on Tuesday. Hester will instead reiterate the work that has gone into returning the bank to profitability for the first time since the third quarter of 2011. Its first-quarter profit of £826 million was £400m short of expectations, prompting a number of broker downgrades.

Gary Greenwood, banking analyst at Shore Capital, said RBS is still faced with the dilemma of shrinking its business and shoring up the balance sheet while still delivering improved returns. He said: “The issue they have got still is that profits are too low.”

Shareholder advisory group PIRC has opposed RBS’s remuneration report on the grounds of “excessive” long-term bonus awards, while the UK Local Authority Pension Fund Forum believes international accounting rules may be hiding £10 billion of undisclosed losses on the RBS balance sheet.

Hester may also be pressed for his views on the final report due next month from the Parliamentary Commission on Banking Standards, which could recommend a break-up of RBS. Investors will likewise be keen for news on the disposal of 316 RBS branches.

A deal to sell the network to Santander collapsed last year, forcing RBS back to the drawing board. It is thought the bank has reduced its list of bidders to a final two.

Lloyds will face similar questions at its AGM on Thursday after its agreement to sell 632 of its branches to the Co-op Bank fell through last month.

The group has shored up its balance sheet through a series of deals, including selling half of Sainsbury’s Bank to the supermarket group for £248m plus added costs.

Deutsche Bank is also advising it on a possible sale of Edinburgh-based asset manager Scottish Widows Investment Partnership.