Comment: RBS idea is beyond its sell–by date

SHOULD Royal Bank of Scotland be split up? The Parliamentary Commission on Banking Standards is expected to at least suggest this as an option for the bank in the next couple of weeks, though it appears the Treasury has little appetite for taking any action likely to require more time and cost in getting the bank back in private hands.

Terry Murden. Picture: TSPL

Hardliners are demanding either breaking it up into a series of regional banks or dividing RBS into a good bank and a bad bank, along the lines of Northern Rock.

The idea, favoured by former Chancellor Lord Lawson and Sir Mervyn King, the outgoing governor of the Bank of England, would be to warehouse the toxic loans under government control while the good bank effectively starts afresh with a clean balance sheet. But this solution is already past its sell-by date. RBS has taken out so much bad debt, and sold down non-core assets to the point where it is already well on the way to achieving the same goal.

It is now well-capitalised, able to avoid the necessity to raise new equity to plug any shortfall, and has sufficient liquidity.

To impose another restructuring this far into chief executive Stephen Hester’s turnaround plan would extend the period of recovery and add considerably to the clean-up bill. Few politicians would surely favour such action.

In any case, George Osborne, the Chancellor, is opposed to any further restructuring beyond the division of investment and retail banking. He says that splitting the bank would cost £10bn and involve a complicated revaluation on assets. It has taken long enough to split out the 312 branches in England and Wales which is still not complete and failed to find a buyer.

Royal London deal leaves Co-op exposed

royal London, Britain’s biggest mutual insurer, just got bigger. Yesterday’s overwhelming vote by members to approve the acquisition of the Co-op’s life insurance and asset management business significantly transforms the group which includes Scottish Life and Scottish Provident.

Yet the deal is as much about the future of the seller as it is about the acquirer. The Co-operative group, held up as a steady and robust institution, has had a troubled few months as its financial services division has come unstuck.

The aborted acquisition of the assets of Lloyds Banking Group, in what was seen as a bargain deal for the Co-op, left big questions over the future of the Co-operative Bank. The offloading of the life insurance business could herald the beginning of a break up of the division.

It says it is sufficiently well-financed not to require a government bail-out, but Barclays has estimated the size of its capital shortfall at £1.8 billion. Much of this is because of loans made by Britannia Building Society which it bought in 2009.

Integrating that business has proved a problem, but it formed part of the management’s pursuit of an acquisitions strategy that included the Somerfield supermarket chain. Sadly, in becoming a “super-mutual”, the Co-operative seemed to lose its way, profits plummetted and the ratings agency Moody’s reduced the bank’s creditworthiness to junk status.

It now plans to sell the general insurance business, though the appointment of Niall Booker from HSBC as chief executive of the bank suggests it has plans to hang on to its core assets and rebuild. He has quite a job to do.