RBS in talks to sell its Bank of China stake

Published on Thursday 8 January 2009 08:50

ROYAL Bank of Scotland is in talks over the sale of its £2 billion stake in Bank of China.

Senior figures at the Edinburgh-based bank have this week met with Beijing regulators and executives of the Chinese financial heavyweight to discuss the possible divestment of its 4.3 per cent stake.

Any sale would be a highly significant move for RBS as it indicates a significant change in strategy since the bank's balance sheet and share price took a battering and the Government stepped in as majority shareholder.

Previous chief executive Sir Fred Goodwin had made the bank's aggressive international expansion his top priority, and under his helm the company prided itself on its global standing.

Since the UK Government became the majority shareholder, however, there has been pressure for the bank to use its limited resources to support the UK economy.

New chief executive Stephen Hester has been among the RBS officials to meet with BoC representatives.

A source familiar with the situation was today reported to have said: "No final decision has been made about whether the BoC stake will be sold, but the Chinese are aware of RBS's thinking on the issue. Selling the stake is among the options."

As recently as July, RBS executives ruled out any sale of its BoC stake, which it bought as part of a consortium for 800 million in December 2005.

At the time, then chairman Sir George Mathewson had said the size and growth of China was an "important opportunity" for the group.

Following its investment, the bank was "locked in" to the agreement for three years but that expired last week. Now, any sale is likely to result in a big profit on the original investment.

Even if a sale was concluded, RBS would still have some operations in China through a 13-branch network it acquired from ABN Amro.

A number of foreign investors in China are now looking to cash in their lucrative holdings. Analysts expect foreign institutions including Goldman Sachs, Citigroup and Dresdner Bank to be tempted to sell stakes once their lock-in periods expire in the coming weeks.

The trip to Asia by Mr Hester formed part of his ongoing strategic review of the business. A sale would be intended to give a boost to its ailing balance sheet. The company has already been looking to sell its insurance operations, which include Direct Line and Churchill.

Mr Hester is expected to return to China soon after the Chinese New Year celebrations conclude at the end of the month to take talks forward.

Li Ka-shing, the Hong Kong billionaire that invested in BoC alongside RBS, also sold out yesterday.

RBS declined to comment on its BoC investment.