RBS lining up McKillop successors as City braces for profits warning

Published on Sunday 28 December 2008 19:37

THE odds on a New Year profits warning from Royal Bank of Scotland are thought to have narrowed sharply ahead of its 2008 results due at the end of February.

City speculation is also mounting that two banking heavyweights have been shortlisted as potential successors to chairman Sir Tom McKillop, who steps down in April.

Mervyn Davies, chairman of Standard Chartered, is believed to have made the shortlist, along with Sir Keith Whitson, a former chief executive of HSBC.

City analysts believe RBS wants to announce a new chairman before its annual results, which are expected to show the bank heavily in the red following interim losses of almost 700 million in August.

The beauty parade of potential chairmen follows McKillop's ousting along with RBS's former chief executive Sir Fred Goodwin as part of the UK government's 20 billion bail-out of the bank. An RBS spokesman declined to comment yesterday.

New RBS chief executive Stephen Hester said last month he was "not wildly disputing" City expectations for a full-year loss for 2008.

RBS's losses in the first six months of 2008 followed nearly 6bn of toxic asset writedowns.

Analysts at UBS have warned that the bank may record losses of up to 28bn in a worst-case writedown of the assets it acquired with Dutch bank ABN Amro.

However, others believe this scale of loss is unlikely. "That does look on the high side, but nobody will be at all surprised if RBS's losses had not continued throughout the full year," one analyst said.

Another commented: "An advantage of a profits warning would be to take some of the sting out of the full-year number itself, and make it easier for Hester to portray the bank as moving forward again, particularly with the announcement of a new chairman."

The latest speculation comes as the three-year lock-in agreement relating to the Royal's 4.3 per cent stake in Bank of China expires this week.

Some in the City believe Hester is more concerned about rebuilding RBS's UK reputation, and would welcome the possible 2bn-plus that a sale of the stake could raise.

The new boss is committed to a strategic review of the whole of the bank's business, which is expected to run through the first half of 2009.

Sources say the sale of the BoC stake is no foregone conclusion. It is thought RBS still considers China a growth market, with opportunities for both its wealth management and global markets businesses.

Meanwhile, despite weekend reports that the Scottish bank is considering pulling the 7bn sale of its insurance business, talks are continuing. "We are continuing discussions with a number of interested parties," an RBS spokesman said.

RBS is thought not to have ruled out a deal with CVC Capital Partners, which wants to buy the business, including flagship names Churchill and Direct Line.

It was reported at the weekend that separate talks may also involve another private equity firm, BC Partners.

However, one analyst said: "Hester may decide he wants to keep the business.

"Both Direct Line and Churchill are strong brands, and insurance as a sector is not as capital-intensive as some banking businesses. In this difficult climate for banks that would be seen as a plus."