Government likely to back away from splitting RBS

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A TREASURY report is expected to reject calls to break up Royal Bank of Scotland, as sources over the weekend suggested that the edict will be published after the Conservative Party conference in October.

The government-commissioned report has moved away from splitting RBS into a “good” and “bad” bank, although it is thought it could still recommend selling off RBS’s troubled Irish business in an effort to appease the Parliamentary Commission on Banking Standards, which called for a break-up.

The report, being produced by Rothschild, has been delayed due to the scale of its remit.

It is thought that private investors are against the break up of RBS since its pool of non-core assets has shrunk from £285 ­billion to £45bn since 2008. The government still holds an 81 per cent stake in the Edinburgh-based lender.

Elsewhere, the Co-operative Bank faces being demutualised if a group of Wall Street bondholders succeed in derailing the bank’s plan to fill its £1.5bn capital shortfall. A number of US funds have joined a campaign led by investment bank Moelis & Co which is proposing to turn the 140-year-old mutually owned bank into a listed company.

Hedge funds including Aurelius Capital Management and Silver Point Capital have rejected the bank’s plan which would force bondholders to take losses on their investments. 
A committee set up by the Co-op Bank board, including chief executive Niall Booker and chairman Richard Pym, will this week meet the bondholder rebels.

The bank is expected to publish an exchange offer for bondholders later next month as part of an agreement with the Prudential Regulation Authority which demanded the bank raise funds.