DCSIMG

Hester plots rebuild for RBS as bid emerges for US offshoot

STEPHEN Hester, chief executive of Royal Bank of Scotland, took the first tentative steps to putting it on a firmer footing yesterday as a £1.5 billion potential bid emerged for one of its US businesses.

Hester's plan for rebuilding RBS into a "vibrant and profitable bank" was unveiled as a founder of part of payment-processing business RBS WorldPay said he was interested in buying all of the business back from the bank.

RBS WorldPay is one of the leading payment processing businesses globally and is part of global merchant services, one of the businesses RBS has been forced to sell under EU rules on receiving state aid.

Nick Ogden, chairman and chief executive of Voice Commerce Group, said he had backing from up to three private equity firms to finance a deal.

"Yesterday, we formally approached RBS to buy the business back from them," Ogden said. The interest had been passed on to UBS, which is handling the sale.

Ed Uzialko, the founder of Lynk, now also a part of RBS WorldPay, said he wanted to buy the US business back.

Ogden said. "We don't know if that's the correct figure today, clearly a lot of due diligence needs to be done," he said.

Hester said yesterday on asset sales: "The telephones are ringing, but don't expect anything soon. You should expect it to take at least a year before the first of these businesses goes anywhere."

Hester said group bad debts were "plateauing", and also forecast RBS would stay in the red in 2010 as well as this year – making three years of losses in all.

"I have repeatedly said this is a marathon, not a sprint, and so it is proving," Hester said, as he unveiled an operating loss of 1.5bn for the three months to end-September. That compared with a loss of 3.5bn in the previous three months to June.

Bad loans in the latest quarter fell to 3.3bn from 4.7bn in the previous quarter.

Impairment charges at RBS's UK retail arm fell to 404 million from 470m, while UK corporate bad debts dropped to 187m from 450m.

Bad debts in the US rose, however, as conditions remained tough across the Atlantic.

The improved performance came despite a slump in profits at RBS's investment banking division to 375m from 1.1bn in Q2. Hester said bad debts in the division and more normalised trading after an exceptionally strong first two quarters dented profits.

He disagreed with Bank of England Governor Mervyn King's call for the banks to be split between retail and investment operations.

Evidence showed that most failures in the banking crisis had involved "narrow banks", he said.

Asked if the bonus clampdown driven through by the government, now an 84 per cent shareholder in RBS, had made it difficult to recruit top investment banking staff, Hester said: "It's been a significant impediment this year and I expect it will be next year."

He added that it was "a tightrope" getting the balance between good banking remuneration reform and attracting good people who would eventually benefit both shareholders and the taxpayer.

RBS shares were among the main gainers in the FTSE 100 index, adding 5 per cent to 37.06p, as the market took the positives from the results.

These included a cost/income ratio – a key measure of cost control – down from 66 to 59 per cent, partly helped by nearly 20,000 redundancies Hester has so far pushed through since he took the helm from Sir Fred Goodwin a year ago.

On the controversy of bank lending to small businesses, he revealed that businesses were paying down debt as fast as others took it. Companies and small businesses had RBS credit lines of 27bn in untouched overdraft facilities, he said.

"We should all be happy about that. The way into recovery is not another borrowing binge," Hester added.

 
 
 

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