Commission waters down RBS break-up call

 
rbs

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, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 165.

    There was speculation last week about the Irish Government taking over Ulster Bank, why would they? RBS led the way for Ulster Bank and encouraged the frenetic allocation of property loans and mortgages in Ireland so why should Edna Kenny et al even consider such a proposition. Added to which RBS have a huge investment as a result of bad debt it has absorbed from Ulster.

  • rate this
    +1

    Comment number 164.

    When commenting about the sale of Worldpay, it should be remembered that this sale was mandated by the EC. Just goes to prove that politicians regardless of their jurisdiction, know little about business and should therefore keep to what they know best, worrying about the next election.

  • rate this
    +1

    Comment number 163.

    nilbymouth requested a summary of how much state aid RBS received and what it has paid back. I believe it looks like this:
    Equity: £45.8bn shares + £8bn contingent capita (not repaid)
    Asset insurance ("APS"): £202bn (repaid)
    Emergency liquidity / guarantees (inc. US): £163bn (repaid)
    LTRO (EU aid): £5bn (?)

    Total c.£425bn, of which c.£54bn. RBS paid fees and interest for most of the aid.

  • rate this
    0

    Comment number 162.

    155 AllinAll
    a capitulation
    surrendering away the power to dominate others.
    /
    Perhaps the watering down of the proposals is an example of how we can sublimate or wills to the common good. Through the surrender of the queen the game can be won.

  • rate this
    -1

    Comment number 161.

    I'm with Alex salmon let's have a referendum on it
    Scotland for the Scots
    hic

  • rate this
    0

    Comment number 160.

    157. EggsBenedict
    "It can't sell Ulster Bank - who would buy it?"
    -----------------

    Thank you for proving my point about privatisation of profit, nationalisation of debt.

  • rate this
    0

    Comment number 159.

    @158 - "the *future* juicy profits" went outside of RBS, yes. Inevitable, right? RBS needs to strengthen its balance sheet with more cash. How can it do that? Sell something. What can it sell? Something that's profitable. The money can't come from nowhere & you can't sell non-profit making business - RBS is just closing them as fast as it can.

  • rate this
    0

    Comment number 158.

    157. EggsBenedict
    "the proceeds from WP sale went to RBS."
    ------------------

    Yes, and all the juicy profits of RBS's very successful card processing division went into private hands. Did we get a good price for the sale of WordPay? Ask Robert, he won't even tell you that the sale took place. The BBC is a joke.

  • rate this
    0

    Comment number 157.

    @156 - Eh? RBS is 81% state owned - the proceeds from WP sale went to RBS. It can't sell Ulster Bank - who would buy it? It has to get to the point where it has a healthy balance sheet across the businesses it's in before it can be reprivatised and the proceeds from that can go back to the Govt.

  • rate this
    +1

    Comment number 156.

    154.EggsBenedict
    "it's getting rid of businesses it can sell that it does not want"
    ---------

    Indeed, in a previous blog Robert Peston made a comment about RBS wanting to get rid of bits. He neglected to say which bits and how hugely profitable they were. I call it privatisation of profit, nationalisation of debt. WorldPay was all juicy profit, it's now privatised.

  • rate this
    0

    Comment number 155.

    plotinus @150
    "surrendering"
    To the moment, our liberation
    Well caught!

    Mammon will not attend the signing.
    High and low, we will be giving away something never by most wanted, never by any 'good for them', the power to dominate others, individuals and world

  • rate this
    0

    Comment number 154.

    @153 - it also sold off some other of its businesses (for example, in Asia): this is its strategy - it's getting rid of businesses it can sell that it does not want, and investing in what it would regard as its core businesses. Clearly it would be hard to sell Ulster Bank.

  • rate this
    +1

    Comment number 153.

    Try googling "worldpay sold" and you'll get 470,000 results from sites like Reuters, Sky News and Bloomberg about how RBS already privatised WorldPay, it's card payment division. There's not a sausage about it from the BBC. The BBC is just a propaganda mouthpiece for the government.

  • rate this
    0

    Comment number 152.

    Grounder @149
    "My inner cynic"
    Same though came to me!
    Its not cynicism really. The drive to find SOME sense!

    Watch out as the carriage passes, oranges furiously waved, and there's a puddle in front of… Too late? Sorry

    We the people, far from central in this world.

    But it WILL be democracy that carries some 'of us' to the stars

  • rate this
    0

    Comment number 151.

    @131 - so you really don't have any idea, but you like the idea of sniping from the sidelines. Nice one.

    You're right that you can't justify excess with other excess, but it's also right that you're not going to find anyone with anything like relevant experience to take the job 'for the love of their country'. It's a no-win situation, and RBS'll need to pay big to get someone to take it on.

  • rate this
    0

    Comment number 150.

    148 AllforAll
    Watering down RBS break-up call.
    a capitulation
    /
    An interesting metaphor.
    Perhaps what we are really talking about here is the drawing up and agreeing of the terms of surrender.
    But who is surrendering and to whom?

  • rate this
    0

    Comment number 149.

    @148 We must wait to see whether Ed's cap is more words than action, but it hardly seems designed to capture the powerful grey vote. My inner cynic begins to believe the Labour leadership would rather not win the next election, or perhaps they hope to be saved by their successors sooner rather than later.

    But for now RBS is a dead duck better left in the UKFI fridge than rotting in the FTSE sun.

  • rate this
    0

    Comment number 148.

    Grounder @146

    IF 'all in good faith' - cleary committed to equal partnership ('materially, in the field', as well as in aim of shareable morality) - then as you say. But need not be gullible! Think of 'capitulation' in market

    Is not RBS anyway hamstrung? Frankly, so much loss-socialisation, we are down to generational war-games. Will young vote go to Ed's pension cap, or for Bank of Mum & Dad?

  • rate this
    0

    Comment number 147.

    Can Robert do a simple income and expenditure chart showing what we have put into RBS, what they have paid us and what remains to be recovered at today's prices; and then update it every now and then?

    Most of what we "gave" RBS was recoverable capital investment (ie stock). Most of what RBS gave us was in expenses, ie non-recoverable fees.It would be helpful to see this in a mini balance sheet.

  • rate this
    0

    Comment number 146.

    @137 People of good faith must assume disagreements are rooted in differences in understanding.

    @141 Even flat lines of real (deflated) GDP or a constant proportion employed in a growing workforce are "downward"?

    @142 I propose we stick to UKFI retaining RBS as a loss-socialisation vehicle.

    @145 Retain it all until we can see what the economy needs from it, in the then taxpayers' interests.

 

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