RBS split costs 'exceed benefits'
on 14/08/2013 13:41:10
Britain's Chancellor George Osborne has ordered a review into breaking up the 81% state-owned lender, with investment bank Rothschild due to report back in the autumn.
But Fitch Ratings said splitting out and fully nationalising the bank's toxic assets - such as UK commercial property and Ulster Bank - could pile more debt onto the state and is unlikely to happen.
Fitch is the latest to slam plans to carve up the lender, after outgoing RBS boss Stephen Hester said it would be costly and time-consuming, although former Bank of England governor Lord King was an outspoken fan of the proposal.
The ratings agency said RBS's "increasingly robust" balance sheet reduced the benefit of splitting the bank.
Half-year figures showed it swung out of the red with pre-tax profits of £1.4 billion against losses of £1.7 billion a year earlier - its first two consecutive quarters of growth since 2008.
Fitch said: "A bad bank split is unlikely as we believe the costs, obstacles and uncertainties involved in transferring some assets to a state-run bad bank would exceed the benefits, in particular to the UK government as majority shareholder in the bank and potential acquirer of assets from the bank."
Mr Osborne ordered the review into a break-up of the bank in June after it was recommended by the Parliamentary Commission on Banking Standards.
The British Government hopes to boost the economy and revitalise RBS by refocusing it on UK corporate and retail banking, and believes hiving off its toxic assets could assist with this.
Fitch did not estimate how much the carve-up could cost, but said it could reduce value for the Government - "one of whose very objectives is to create shareholder value for re-privatisation".
It said breaking up the bank would probably force junior bondholders in RBS to take a haircut on their investment, which would likely dilute the state's stake as the bondholders' share would increase in return for suffering losses.
Fitch added: "Uplift for shareholders could be difficult to achieve with the costs, legal complexities and valuations that accompany a good bank/bad bank scheme."
It added, public sector debt would also increase by the size of the assets put into a bad bank, adding the Government may have "limited appetite" to take on more debt.
It believes Ulster Bank, UK commercial property and some legacy portfolios would be the most likely assets to be split out.
But the ratings agency said the most likely option was for the bank to continue shrinking and partially floating its US Citizens arm.
RBS recently appointed retail boss Ross McEwan to replace Mr Hester, starting in October.
A Treasury spokesman said: "The Government has set out the next stage of its plan to take the banking system from rescue to recovery.
"As part of that, it set out the three objectives that underpins its approach to its stakes in RBS: maximising RBS's ability to support the economy, getting the best value for the taxpayer, and doing what we can to return RBS to the private sector.
"As part of that, the review into creating a bad bank out of RBS is already under way, expert advisers have been appointed, and it will conclude in the autumn."
The Treasury is reportedly considering injecting another £1.5 billion into the bank if the report recommends it be carved up - after Mr Osborne pledged not to put any more taxpayer money into the bank.
It is said to be mulling recycling funds from RBS's so-called "dividend access share", which prevents RBS paying dividends to normal shareholders.
The golden share was put in place at the time of the bank's £45 billion bailout in 2008 to give the Government first access to any dividends paid by the bank.
RBS would have to compensate the Government with £1 billion to £2 billion to buy out of the arrangement, with the Treasury considering whether to recycle those funds back into RBS shares to bolster its balance sheet.