Sunday 23 October 2016

RBS heading into privatisation

RBS

The Royal Bank Of Scotland(RBS) may be looking forward to privatisation after loosing nearly £52bn.

Royal Bank of Scotland has racked up £52bn of losses since it was bailed out eight years ago this month: and when it reports third-quarter results on Friday it is expected to dive even deeper into the red.

The bank's list of woes seem neverending, ranging from a potential £9bn penalty from the US authorities for mis-selling mortgage bonds a decade ago to allegations of bad treatment of small business customers. Its share price is so far below the 502p average price at which taxpayers pumped £45bn into the bank that the chancellor, Philip Hammond, has abandoned any attempts to sell off any more shares.

RBS's troubles have prompted one thinktank to argue that it is time for a radical strategy rethink, after the bank scaled itself down from a global business with operations in more than 50 countries to one with a flag in just 13 and a renewed focus on the UK high street.

"It's time for the UK government to put all options for the bank's future back on the table and urgently examine whether there are alternatives that could deliver better value for taxpayers and the economy," Laurie Macfarlane, an economist at the New Economics Foundation (NEF), argues in a paper published this weekend.

The vote for Brexit has given the NEF fresh impetus in its call for RBS to be broken up into 130 regional UK banks. Macfarlane argues that RBS could turn its focus to "lending for investment in production services such as manufacturing, retailing and distribution, telecoms, construction and energy", which are spread across the UK.

"Turning it into a network of local banks could therefore help boost real-economy lending while investing in communities that have been left behind by our London-centric economic model – exactly the kinds of communities who voted to leave the EU," he says.

It is not the first time that the NEF – among others – have called for a rethink of the strategy for RBS. Sir Vince Cable called for the dismantling of the Edinburgh-based bank when he was the business secretary in the coalition government. "At the very beginning of our government, we should have gone for the breakup option," the former Liberal Democrat MP says.

"They should be trying to create sensible smaller banks out of the greater whole," Cable adds. However, he acknowledges he has been told that the cost of breakup would be too high – illustrated by the problems RBS has experienced in trying to spin off just 300 branches, as stipulated by the EU as punishment for receiving state aid.

The difficulty RBS has encountered in selling off these branches, intended to be rebranded Williams & Glyn, was referred to by Hammond when he announced that ambitions to sell off the remaining 73% stake had been put on the back burner. "It's clear that the disposal of RBS shares at a price that recovers taxpayers' investment is not practical at the moment," Hammond said. The shares closed on Friday at 190p.

Hammond's predecessor, George Osborne, had indicated that selling the government's stake at a profit was not a priority. He sold 5% at 330p a share – and a £1bn loss – in August 2015.

Analysts hold out little expectation that the RBS share price will ever get back to 502p. According to Bloomberg, the average forecast by analysts is 180p a share – and thus, Macfarlane argues, it is time for a rethink: "It is becoming increasingly clear that there is no way the taxpayer can make its money back by selling RBS back to the private sector."

The Treasury, though, is unlikely to have much appetite to embark upon a strategy reversal. Osborne commissioned a review into whether RBS should be split up in 2013. It backed off radical action and instead focused on putting £38bn of troublesome assets into an internal bad bank.

Ross McEwan, now entering his fourth year as chief executive of RBS, would be unlikely to welcome a full-blown review either. He has embarked on an effort to put a fresh focus on NatWest – the now-revived brand name for RBS's high street banking business in England and Wales – through a new advertising campaign launched last month, and has turned the focus on the remaining businesses, which generate £1bn of profit a quarter. His problem, though, is that those profits are being wiped out by tackling the so-called "conduct issues" of the past.

Ian Gordon, banks analyst at Investec, also points out that RBS is the fastest-growing among its UK peers in terms of lending for mortgages and business. "But that is being drowned out by the bigger, more volatile, 'known unknowns'," says Gordon.

*** Guardian


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