Commission waters down RBS break-up call


And another thing about Royal Bank of Scotland.

I have learned that the Parliamentary Commission on Banking Standards has watered down a proposal for the residual £40bn-ish of bad assets of RBS to be hived off and kept in the public sector, as a precursor to the rest of the bank being privatised.

You may recall that last week I reported that the draft report, written by the commission's chairman Andrew Tyrie, had called for such a break up.

But a number of commission members, while not opposed ideologically to such a break-up of RBS, argued that the commission had not carried out the kind of forensic analysis necessary to underpin such a firm recommendation.

They heard a passionate argument from the soon-to-retire governor of the Bank of England that cleaning up RBS in this way would give it back its mojo (so to speak).

But that was about it.

Start Quote

The prospect of the Treasury making a fat profit on the RBS privatisation is probably slim to none”

End Quote

So the finalised report, which was agreed by all 10 commission members yesterday afternoon, after three days of private debate, will say there is a good case for dismantling RBS but will fall short of stating that it must be done.

Instead it will urge the Treasury to carry out the kind of forensic analysis of such an RBS reconstruction which the commission did not have the time to do - and report back in a few months.

Which will come as something of a relief to the chancellor, who is not implacably opposed to retaining the bad bits of RBS, but has also been told by the departing chief executive of RBS, Stephen Hester, that the bank is well on the way to being sanitised by its own efforts.

Also, the technical challenges of hiving off £40bn of toxic loans and investments - such as fixing a price for them which is neither seen by the European Commission as too high (and in effect state aid to RBS), nor so low that it smashes a hole in RBS's capital resources - won't be easy.

Anyway, the point is that the question of whether the eventually privatised RBS will be super clean or not will remain an open one for some weeks or months yet.

By the way, what I thought was most striking in my interview with Stephen Hester last night is that he volunteered his confidence that taxpayers would be able to get back all the £45bn of equity they invested in RBS to keep it alive five years ago.

My interview with outgoing RBS chief executive Stephen Hester

As I said on the 10 O'Clock news last night, his choice of £45bn as the sum needed to be repaid, has great political significance.

It is the pure cash sum which was invested in RBS by the last Labour government - and at this moment the shares that were bought with the £45bn are worth many billions of pounds less than that (normally I would tell you how many billions less, but I am a long way from a screen, so please forgive my crude approximation).

Here is the thing. My understanding is that UK Financial Investments, which manages taxpayers' stakes in the banks for the Treasury, agrees with Mr Hester that the £45bn can be repaid, if the privatisation is carried out in phases over many years.

However, there are others around Mr Osborne urging him to go for a faster privatisation, at the risk of getting back much less than the £45bn - and have told him he can blame his Labour predecessor as chancellor, Alistair Darling, for overpaying for that 81% RBS stake.

Whether or not Mr Darling overpaid is a tricky one. Certainly RBS shares tanked after the state rescue. And the prospect of the Treasury making a fat profit on the privatisation is probably slim to none.

But if, as Mr Hester says, there is a prospect of retrieving the £45bn from a phased privatisation over several years, then many would say better to be slow and patient with the sale rather than hurried and loss-generating.

Although Mr Hester and Mr Osborne would agree on not waiting forever to begin that journey to loosening state control.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 25.

    @10 Value of RBS & Lloyds: less than one year's budget deficit. Tax revenues from oil and gas: £12 billion in a good year, one quarter of the support to RBS. Unfunded public sector pension obligations: £852 billion [end 2010].

    Nice theory, but I can't get those numbers to add up!

  • rate this

    Comment number 24.

    Others "around Mr Osborne… have told him he can blame his Labour predecessor", assuming the public not so close to cynicism as to see?

    Yesterday I thought the idea fanciful, now we have it, thanks to Robert Peston: from "others around Mr Osborne", so brazen

    The Commission 'anticipated' a few months for analysis and decision, and Robert expects 'some weeks or months', signal clear

  • rate this

    Comment number 23.

    #14 Because he's a politician!, Won't accept responsibility, will lie through his teeth to stay in power and plans to wreck the Union.

    Back on topic, Hester probably was on a hiding to nothing, metaphorically! As he said himself he "...didn't need to be prised away..."
    He's been paid handsomely, he is a banker after all!

  • rate this

    Comment number 22.

    Oh - and in case you forgot - that money in Lloyds and RBS - YOU'RE NEVER GETTING IT BACK.

    ....4 years on and still all we have seen are empty promises from LIARS - and the gullible fools who echo those lies in the absence of having the guts to admit they were wrong.

    Not long now - crisis mark II will result in 'Cyprussing' your account and then you will HAVE to do something about it.

  • rate this

    Comment number 21.

    "his choice of £45bn as the sum needed to be repaid, has great political significance."

    £45Bn in 2007-2008 was worth a lot more than it is today. QE has seen off at least 25% of that value. If taken into consideration along with Darling paying over the odds for the taxpayers 82% stake in RBS there is a long way to go before the taxpayer gets anywhere near recouping the money ploughed into RBS.

  • rate this

    Comment number 20.

    Hester quits - the Nikkei falls 6% overnight and RBS announces further job cuts
    Hester's best trick was seeing what's around the corner and jumping before the crash with his hands filled with taxpayer loot

    This is what happens when you put your trust in fraudsters, crooks and liars (again)
    Should have listened at the start - it's a 10 yr depression and anyone who tells you different is a liar

  • rate this

    Comment number 19.

    How about sacking Osborne and keeping Hester as chancellor?

  • rate this

    Comment number 18.

    There are certain things that should remain always in the hands of the sovereign nation concerned

    It’s Currency

    It’s Utilities

    It’s Transport Infastructure


    Because whoever has control of at least one of the above can effectively hold that country to ransom.


  • rate this

    Comment number 17.

    Having heard Hester on R4's TODAY, I am not surprised. Guess that may be a big reason why he is leaving. He knows the true condition of the bank.

    Think MPs should get their stickies off RBS, am not sure they can be trusted.

    It belongs to us.

  • rate this

    Comment number 16.

    '40 bn'ish bad debt hived off to public sector' - tax payer liable for 'private bank' debts - daylight robbery - what's happened to shareholder liability?!!!! For taxpayer to accept this liability RBS should be state owned!

  • rate this

    Comment number 15.

    So a new boss for RBS = 1 golden goodbye + golden hello + bonus for recruiting director = another rip off for the tax payers. Please re-fill the trough.

  • rate this

    Comment number 14.

    On Google, anyone can read Alex Salmond's letter of support and encouragement to Goodwin.
    Why is Salmond not now contributing to the debate about how to proceed, and why does he not take his share of the responsibility for cleaning up the awful mess ?

  • rate this

    Comment number 13.

    we have to be careful!
    the banking system is 'dissassortative'
    and large banks such as RBS are 'superspreaders'
    job cuts are worldwide in the investment arms...the last part of the bank to suffer 'rationalisation'

  • rate this

    Comment number 12.

    If the government can sort out corporation tax properly then re-privatising the bank may even be a better "investment", with better returns than that initially made by Darling. However toxic etc one may think banks to be, I cannot imagine that the government is doing it any favours.

  • rate this

    Comment number 11.

    Why not go the other way? Buy the remaining shares and run RBS properly as a state bank.

    There are pros and cons but if done well that could be of significant economic benefit in the medium to long term.

  • rate this

    Comment number 10.

    Keep RBS, Keep Lloyd's, fold all government assets (property, art, wine, a 10% share of oil/gas revenues) into a Norwegian Style "Government Pension Fund of the UK". Sweat these assets, and in a generation after the banks have turned around, there will be a huge pot of money to fund UK Public Sector Pension Liabilities, and get them off the backs of general taxation and council tax.

  • rate this

    Comment number 9.

    We must be coming up to a profitability point for the bank.

    Therefore we must privatise the profits.

    The rules surely state only the losses are given to the public.

    Osborne is not certain that he can get in after the next election, so he has to divide up the spoils now.

    This decision is political.

  • rate this

    Comment number 8.

    Will this Government do what is best for the tax payer who picked up the bill for the bankers' party that went so drastically wrong, or will they do what is best for their mates in big business who fund their election campaigns...???

    Let us look at their track record..... cuts for the rich, pasty tax for us plebs, cosy breakfasts with Ministers for some but not the likes of us....

  • rate this

    Comment number 7.

    So Hester wants to stay for five more years and gradually recoup all the money paid by the taxpayer while GO wants to sell it off just before the election.
    Sacked then?

  • rate this

    Comment number 6.

    This is simple, albeit unethical, politics.George & Dave need a big lollipop to give the people some of their own money back immediately prior to the 2015 election. Sadly, it will work in London & the Home Counties even if their heart surgery for kids is closed or Grandmother is given a cardboard box to sleep rough as she can't afford the iniquitous bedroom tax.


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