City stands to lose its RBS assets after rescue

Published on Tuesday 14 October 2008 09:56

FEARS were raised today for the future of Royal Bank of Scotland as an independent company based in Edinburgh after the Government's move to snap up a majority shareholding.

A leading shareholder group said the Edinburgh-based bank was already effectively Government-owned after it agreed to acquire 60 per cent of its shares.

Prime Minister Gordon Brown has said that, over time, the Government will look to dispose of its investments "in an orderly way".

That has led to fears that a competitor will swoop to take control of the ailing bank.

It comes after Lloyds TSB also renegotiated its deal for HBoS which, if backed by shareholders, is expected to see the new group headquarters move out of Edinburgh. The deals will mean that all of Edinburgh's top five employers will be either public companies or part-owned by Government.

Roger Lawson, director of the UK Shareholders Association, a leading lobby group for investors, hit out at the Government's actions on RBS, which will see it get three seats on the board.

He said: "One of the main issues is that they are no longer an independent body. They are controlled and owned by the Government.

"The Government is always subject to political pressures. They will either make a total hash of running it, as they usually do, or they will flog it to the highest bidder. Either way, it will not remain a Scottish bank based in Scotland."

He said he had personally lost 50,000 on the value of his RBS shares in recent weeks and said many members have lost much more.

Shares in both RBS and HBoS, which would become 40 per cent Government-owned when it merges with Lloyds TSB, continued their decline yesterday following the announcement.

"Shareholders are selling just like I am," said Mr Lawson. "They do not want to be a minority shareholder in a company controlled by the Government. What is the point holding shares in a company if no dividend is to be paid?

"They have effectively nationalised RBS without shareholder consent, in breach of stock exchange rules. It is an absolute disgrace.

"Clearly the Government will be able to take complete control and sell it off whenever they want. It is obvious they want to make a profit and they will make a big profit. All of this just screws shareholders. They get nothing at all."

Bryan Johnston, director at private client investment manager Bell Lawrie in Edinburgh, welcomed the move by Government but admitted that the future of the two banking headquarters in Edinburgh was uncertain.

He said: "The Government doesn't want to own the UK banking system and they will look for opportunities to sell their investments. Any quoted company is exposed to the possibility of another company making a bid. It is up to shareholders, and in RBS's case that includes the Government, to make a decision."

Graham Birse, deputy chief executive at the Edinburgh Chamber of Commerce, said that it was vital that Edinburgh's financial services brand "reasserts itself in world markets".

"That has to mean independent and strong banks. That is compromised when the Government has a majority stake but it has indicated that as soon as the conditions are right it will sell that stake.

"Clearly we would all be concerned if the headquarter functions of RBS or any other large financial institution, was to be compromised.

"The best solution for our banks and the rest of us is not to panic but to continue to offer good sound financial advice for savers. It is what we've built up over 100 years and it won't disappear in one crisis."

The financial crisis has led to fears of job losses as the leading banks restructure following the Government capital injection.

Unite joint general secretary Derek Simpson said he wanted to see undertakings by the banks of no job losses, no repossessions and an end to the bonus culture.

"The taxpayer must now get a firm assurance that the financial lifeline extended to these large organisations will be used to protect Scottish jobs and the public."

The banking sector turmoil led to RBS chief executive Sir Fred Goodwin announcing that he will stand down, to be replaced by British Land boss Stephen Hester, while Sir Tom McKillop will retire in April.

Meanwhile, there are hopes the capital injection into RBS and Lloyds/HBoS will provide a boost to availability of mortgages.

Kennedy Foster, policy consultant in Scotland for the Council of Mortgage Lenders and a former RBS company secretary and head of mortgage operations, said: "Obviously there is going to be additional capital in RBS and HBoS and just as importantly the capital is to take care of things like write-offs.

"I would expect that would assist in mortgage availability but the mortgage market is far wider than RBS and HBoS. Other money they make available for inter-bank lending will help but I suspect it will be a gradual process before the market opens up.

"Other issues like consumer confidence in the housing market and the willingness of people to buy will continue to have an impact.

"I would expect 2009 to remain a difficult year, probably moving into 2010 until things start to pick up. These measures won't simply end the possibility of recession – there are issues around the general economy that this can't solve."

'I do feel sad . . It is very painful for everyone and I'm a shareholder too'DEPARTING Royal Bank of Scotland boss Sir Fred Goodwin has spoken of his sadness at a turn of events that has seen him stand down from his post as the company prepares for part-nationalisation.

The Edinburgh-based bank's chief executive has announced he and chairman Sir Tom McKillop will waive their right to pay-offs as they both step down.

HBoS has also confirmed that chief executive Andy Hornby and chairman Dennis Stevenson will not receive bonuses when they leave their posts when the Lloyds takeover is complete.

Referring to his resignation, Sir Fred, who is to be replaced by British Land chief executive Stephen Hester, said: "This wouldn't have been the moment or circumstance I'd have chosen.

"I do understand why this is happening, and I think this is the right thing for me to do and for the group to do.

"I've been chief executive for nine years. It would be crazy for me to think of being the chief executive for another three or four years and that is the period in everyone's mind now in terms of deciding what to do with regards to the shares that will be coming up to buy.

"It is right that we get a new leader for the group and I feel confident that Stephen has the skills and temperament to do the job and get the best out of the group.

"I do feel sad. More than anything else while I've been working here I've got a great deal of friendship and support from a lot of people and I'll be moving away from that."

Sir Fred also denied that the acquisition of Dutch bank ABN Amro last year led to the problems at RBS.

He added: "It is very painful for everyone, and I am a shareholder too, but I am convinced it is the right decision in terms of everything going on in the world."

Sir Tom also indicated that RBS was very close to the brink last week.

He said: "Not just for RBS, but many many banks around the world . . . this was a pretty dangerous moment but that is stabilising well now."

Fresh boost for embattled banks

ROYAL Bank of Scotland and HBoS received a boost today after the Irish Government agreed to guarantee all deposits in their Irish branches.

It was announced today that RBS's Irish subsidiary Ulster Bank and HBoS's Irish branches would be included in Ireland's 311 billion deposits guarantee scheme.

Three other foreign-owned lenders - First Active, IIB Bank and Postbank - will also be accepted into the deal.

But Irish finance minister Brian Lenihan said only deposits Irish branches and operations will be eligible.

"Clearly, there will be some additional limitations and safeguards in relation to these operations to ensure that the support provided relates to liabilities arising from their position within the national economy, rather than to their wider group," he said.

Mr Lenihan said the five institutions would fall under an extension to the scheme allowing cover for certain banking subsidiaries with a "significant and broad-based footprint" in the Irish domestic economy.

The package was hammered out last week in late-night talks between the Government, financial watchdogs and top bank executives.

The pledge, which covers debts and deposits for two years, annoyed British Prime Minister Gordon Brown and German Chancellor Angela Merkel, who feared it would trigger a flight of capital out of the UK and Germany to Irish banks.