Slimmed-down RBS easier to privatise, says UBS
However, the bank’s house broker said the state-backed lender – which last week sealed a deal to spin off more than 300 branches to a consortium supported by the Church of England – should not be carved up into a “good” and “bad” bank, arguing that the benefits would be outweighed by the efforts involved.
RBS, which declined to comment last night, is 81 per cent owned by the taxpayer. Earlier this year it revealed that it was planning a partial flotation of American bank Citizens within the next two years. The group’s finance director, Bruce Van Saun, will become chief executive of the US business next month.
RBS itself will have a new chief tomorrow, when Ross McEwan – who joined last year to run its retail banking operation – takes over from Stephen Hester.
Under the shake-up suggested by UBS, existing RBS shareholders would own one-third of a “new” bank, with the UK government owning the rest. The state would also take full ownership of the Irish and US assets, which would then be run down in a similar manner as Bradford & Bingley and Northern Rock.
Shares in the “new” RBS could be worth about 540p, UBS said, well above the state’s break-even level of 500p.
The broker added: “This mechanism would provide a higher probability of the government getting their original cost of investment back.”
Earlier this month the taxpayer made a £61 million profit on sale of a 6 per cent stake in fellow bailed-out lender Lloyds Banking Group at a price of 75p a share, above the 73.6p average paid by the Treasury. The state now owns 32.7 per cent of Lloyds. Further share sales may be opened up to members of the public.
A government-commissioned report, being produced by Rothschild, is also expected to recommend selling off RBS’s troubled Irish business but reject calls for a full break-up of the bank. It is thought that private investors are against an outright split of the lender because its pool of non-core assets has shrunk from £285 billion to £45bn since 2008.
Ratings agency Fitch has also argued that splitting up RBS and fully nationalising its toxic assets, such as UK commercial property, could pile more debt on to the state, and its “increasingly robust” balance sheet reduced the benefits of a carve-up.
Recent figures showed RBS delivered a pre-tax profit of £1.4bn in the first half, compared with losses of £1.7bn a year earlier – its first two consecutive quarters of growth since 2008.
Chancellor George Osborne ordered the review into a break-up of the bank in June after it was recommended by the Parliamentary Commission on Banking Standards. But UBS said: “We think there is little sense in taking RBS’s existing non-core operations and splitting them from the good bank.”
On Friday, the lender agreed a £600m deal with a Church of England-backed consortium to spin off 314 branches ahead of a stock market flotation of the business, which will be rebranded as Williams & Glyn’s. The investors, led by private equity group Corsair, have lined up John Maltby, the former head of commercial banking at Lloyds, as chief executive of the new bank and pledged to “restore faith” in the sector.