Tuesday, 29 October 2013
Will they, won't they split RBS?
The latest project to come up is what to do with RBS. Lloyds has been set forth on the road to full privitisation with a sucessful sale of shares the other month. Next year will see the Government holding whittled down to next to nothing, in plenty of time for the election, natch.
RBS presents a more worrisome challenge. The banks historic incompetencie's are vast, with a huge array of mis-selling, rigging and general lending splurge having laid waste to both its management and balance sheet. Stephen Hester did a good job of steering the bank away from the brink and now new management has the job of building for the future. The bank though is still brought low by its bad debts - a sterling job has been done to sell its non-core assets down from £350 million to more like £80 million, but the buffer that was trading profit that allowed it to balance profits and losses (well, sort of, RBS has been the least profitable of the big banks by far since 2008) has been closed down. This leaves a steadier income stream from corporate and SME banking, but a less profitable future.
So clever Mergers and Acquisitions advisors at Blackrock have been telling the Government to split the bank to make the good part easier to put back into the private sector. meanwhile the bad part can sit on government books just like Northern Wreck and slowly lose taxpayers money into the distant future. The split and sale has a positive outcome for those wishing to see deal activity and also for a stock market which likes nice easy bets, like the Royal Mail.
Also a thorny issue for the Government though is that the most under-performing part of RBS is its Ulster Bank - a part of the UK which needs help and does not need a banking crisis of sudden call in of credit lines. This issue is the main one which has driven the Government side of the need to split the bank.
From the bank side a split would be disastrous, the need to split out employees, systems and balance sheet is a hard job. So hard that Santander got bored of waiting to acquire a mere 5% of the bank and walked away from its deal to buy Williams and Glynn after 18 months. To inflict another large change on the bank would surely cripple its market focus and suck in all resources for another 2 years.
So a lot depends on the results on Friday, which should be announced with the decision about whether to make a split into a bad bank. If things have continued to turn around, perhaps the Government will leave it be, with a fig leaf of a faster closure of the investment bank or an 'internal' split of the bank, pushing its restructuring and Non Core units together. if things have nor progressed, then the dealmakers will have their day and RBS will be consigned to the same bin as Northern Rock, having turned our only to have managed to have its suspended for 5 years and then imposed after all.