Royal Bank of Scotland (RBS) dodged a full break-up yesterday as it revealed plans for the rapid wind-down of £38billion of toxic loans while slashing costs.
The 81% taxpayer-owned lender avoided a threatened full split into a “good” and “bad” bank as a UK Government-commissioned report concluded that would do more harm than good.
Instead, RBS will create an internal bad bank of problem assets to be run off over the next three years, avoiding the “effort, risk and expense” of the fully nationalised alternative.
Chancellor George Osborne admitted the bank, which plunged to £634million third-quarter losses, is “unlikely” to be sold back to the private sector before the 2015 general election however.
RBS shares slumped 8% to £3.40 after the results missed City forecasts and Edinburgh-based RBS raised the spectre of up to an extra £4.5billion in bad debt writedowns in the final three months of the year.
New chief executive Ross McEwan has also started a deep review, which will report back in February and see heavy cost-cutting and a sharper focus on business lending.
RBS will also speed up the sale of its Citizens US banking subsidiary, with a partial flotation next year.
The “bad bank” announcement coincided with two lengthy reports, which detailed RBS’s performance between July and September and criticised the bank’s lending to small businesses.
Sir Andrew Large, former deputy governor of the Bank of England, found a host of problems in the way RBS treats small and medium-sized enterprises, including long delays on approving loans and poor treatment of struggling borrowers.
Mr McEwan said the bank accepted Sir Andrew’s report and would address it in its review, which aims to “create a bank that can reward the faith of UK taxpayers and all our investors”.
The bank’s boss added: “We are hugely indebted to the public of the UK for putting their hands into their pockets and saving this great institution.”
RBS, which needed a £45billion taxpayer bailout in 2008, said the bad bank would contain about £9billion of assets from Ulster Bank, as well as problem commercial property loans.
It added it had already done the “vast bulk” of repairing its balance sheet, slashing “non-core” assets from £258billion five years ago, but its latest plans would boost its financial strength by releasing capital and freeing-up management.
The chancellor said a sale of RBS was “still some way off”, adding: “I think, quite frankly, it is unlikely before the general election.”
RBS’s pre-tax losses of £634million compared with £1.37billion losses a year earlier, and were hurt by one-off items and an additional charge of £250million to cover mis-selling of payment protection insurance.
The group also booked £99million of charges for unspecified “regulatory and legal actions”.