Comment: Break-up or sale, RBS debacle won’t go away

Terry Murden. Picture: TSPL
Terry Murden. Picture: TSPL
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WE MAY be enjoying a sweltering spell of weather, but George Osborne and his Treasury team will be getting hot under the collar about problems over the future of Royal Bank of Scotland.

Rarely does a week pass without some further development in the Gogarburn soap opera. Now saddled with a lame duck chief executive, its shares have nosedived thanks to the Chancellor’s decision to find a new boss to take the bank through privatisation.

Added to that, Osborne is no longer ruling out splitting the bank, so he has created more uncertainty over what sort of institution will emerge once he has received recommendations from investment bank Rothschild, which was appointed last week to carry out yet another review.

On Friday, the ratings agency Moody’s stirred things up further by warning that dividing RBS into a “good” bank and “bad” bank would hit profits and require more capital, which the government has ruled out. It may, therefore, eat into reserves.

Moody’s is threatening to downgrade the bank just at a time when it needs to build investor confidence ahead of a return to the private sector.

It has now emerged that the split could be disrupted by company laws protecting minority interests. These say it would need the approval of private investors – in the case of RBS there are 221,440 – and they may not want their bank broken up.

If they are to be bought out they may want a premium or some form of compensation. They are certainly in no mood for compromise as our story today on the legal actions explains. A premium on the price, however, looks a forlorn hope with the shares languishing at a huge discount to breakeven.

Lloyds will certainly go to market sooner amid speculation that overseas sovereign wealth funds and former trade minister Lord Davies have approached the Treasury with a view to acquiring a stake.

The wealth funds have trillions at their disposal and have been waiting for the right time to pounce. They are running the rule over the utilities companies and they will go hunting for the banks once they have cleaned up their act.

For Osborne, the offer of a multi-billion pound cheque would be too good to refuse, particularly ahead of a general election, and would help set a price on the stock. Institutions, however, have warned of a repeat of the Gordon Brown gold price debacle when the former chancellor sold a wad of Britain’s reserves at the bottom of the market.

But I have long argued that the sovereign funds would be first at the table when the sale process is triggered, so this latest speculation comes as no surprise.

Nor would the prospect of either or both part-nationalised banks eventually falling into foreign ownership.

Oh say, can you see a way out?

America dragged us into the slump and was always tipped to lead the recovery. So growing signs of improved conditions across the Atlantic are hugely encouraging.

Friday’s job figures were above expectations and come on the back of a rebound in the housing market and growth in manufacturing.

But these days, good news is interpreted rather perversely by the markets as bad news. They see the improvement as an indication that the days of cheap money will soon be over and that the measures to stimulate the economy, such as quantitative easing, will be withdrawn.

No wonder they’re so jittery. Thursday’s biggest one-day rise in the FTSE 100 since the tail-end of 2011 followed assurances from the new Bank of England Governor Mark Carney and his counterpart Mario Draghi at the European Central Bank that interest rates would remain low for the foreseeable future.

But the US is making more hawkish noises and is contributing to the market volatility that saw share prices fall on Friday. Add to that the crisis in Egypt and rising oil prices, and the ongoing debt problem in the Eurozone, and it is clear that America alone cannot dig us out of the slump.

An opportunity to hold court

On the day that history may be made at Wimbledon, the final word goes to Andy Murray.

Should he win it would give a huge boost to morale throughout Britain in the way cup-winning football teams give a lift to local productivity, C’mon Andy.

Twitter: @TerryMurden1