Hester looks to save US bank in RBS downsizing

Published on Sunday 1 November 2009 19:18

STEPHEN Hester, Royal Bank of Scotland's chief executive, has drawn a "red line" around the group's valuable US retail banking arm as the European Union draws up plans to downsize the group.

RBS is understood to regard Citizens as critical to the bank because it gives it a significant presence in the American banking sector.

Citizens has a network of nearly 1,500 branches throughout the United States and employs about 23,000 staff. RBS bought Citizens bank in 1988. It added the Charter One bank to its US stable in 2004.

EU competition commissioner Neelie Kroes is believed to have eyed the sale of Citizens as one option for RBS as part of the price the bank will have to pay for accepting aid from the UK government during last year's banking crisis.

RBS has received some 20 billion in support from the taxpayer and is covered by the UK government's asset protection scheme (APS).

But the bank looks set to agree an early exit from the costly APS, even though the group may still have to sell its insurance arm – which includes Direct Line and Churchill – to satisfy the European regulators.

RBS is still negotiating the details of the scheme with the UK government and the EU.

Under the latest proposals, the bank is expected to no longer be required to pay an up-front fee of 17.5bn for joining the scheme for five years. Instead, it would absorb the first 60bn of any losses on "toxic" assets, rather than the first 17.5bn as was set out in the original deal.

This would then give RBS the option to exit APS at an earlier stage when markets improve, rather than being tied into the scheme for five years.

It is thought that some of RBS's investment banking operations may also be sold off.

Alistair Darling is expected to make a statement on the future of RBS and fellow nationalised bank Lloyds tomorrow.

Meanwhile, The Scotsman has learned that the European Commission is likely to appoint a trustee to oversee the mooted sale of RBS's 312 branches in England and Wales which could emerge as a separate entity under the Williams & Glyn's brand.

A similar "banking policeman" is expected to be appointed at Lloyds to oversee the rumoured sale of the Lloyds TSB Scotland business.