RBS warns of significant asset sell-off

RBS warns of significant asset sell-off


Part-nationalised group Royal Bank of Scotland (RBS) today warned it will have to sell off more of its assets than initially planned in return for receiving state aid.

Shares in the group tumbled by as much as 12% amid speculation the bank could be forced to sell US business Citizens Financial Group as well as insurance businesses Churchill, Direct Line and Green Flag.

Under its radical restructuring it will have to sell 300 or so branches under the Williams & Glyn's brand. Brussels is also pushing for a reduction in its investment banking division.

The group said discussions with the Treasury and the European Commission were "in their final stages and will include some divestments not initially contemplated".

It added that: "It remains RBS's goal that any required divestments do not threaten its recovery plan, which is already under way."

Chief executive Stephen Hester is believed to want to keep hold of the group's US assets which give it a strong presence in the American retail banking market. He is also against the potential sale of its Global Banking and Markets, which made operating profits of £4.87 billion in the first half of the year.

Nic Clarke of Charles Stanley says: "The big news in this statement is that RBS will be required to make divestments 'not initially contemplated'. As we understood it RBS was likely to have to reduce it small business market share, possibly dispose of its RBS branded branches in England and sell off some of its insurance brands.

"Although we can speculate about what else RBS will have to divest it seems we only have a few days to wait for the definitive answer."

Nevertheless, the European Commission is making hefty demands in return for £20 billion in state aid and use of the government's asset protection scheme.

RBS was initially planning to insure £325 billion of bad loans when the scheme was first announced in February. However, this is set to drop to £270 billion as economic conditions improve but will nevertheless raise the government's stake in the bank from 70% to around 84%.

The bank says it is "close to agreement" with the Treasury over its participation in the scheme. Reports suggest the bank could choose to pay an upfront fee of £17.5 billion and then be liable for the first £50 billion to £60 billion of losses rather than £19.5 billion.

The government will take up an issue of B shares in return for a £19 billion injection.

RBS added: "RBS expects the agreement on the APS to reflect market improvements since February and RBS's ongoing recovery whilst giving protection against future potential stressed case losses."

RBS also revealed that it has brought forward the release of its third-quarter results to this Friday, from Wednesday 11 November.

Jonathan Jackson, head of equities at Killik & Co, says: "Uncertainty over the path of economic recovery, combined with a lack of visibility over the potential for further credit losses, means an investment in either RBS or Lloyds remains very high risk, and we would expect both stocks to continue to exhibit a high degree of volatility over the next few days.

"The announcement over the weekend that CIT Group, the US small-business lender, has filed for bankruptcy (the fifth largest on record) should also serve to remind investors that the financial crisis is far from over."

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