Future of state-backed UK lender RBS set to be cleared up

Thu Oct 31, 2013 5:00pm EDT
 
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By Matt Scuffham

LONDON (Reuters) - The future of Royal Bank of Scotland (RBS.L: Quote) should become clearer on Friday, with Britain's finance ministry expected to reveal if it wants the state-backed lender to be broken up.

Bankers and political sources say the most likely outcome is that RBS, 81 percent-owned by the government, will agree to create an internal 'bad bank' to house more of its problem loans, with the government deciding against a formal break-up.

The plan would see its existing non-core unit, home to bad loans worth 45 billion pounds ($72 billion), enlarged and revamped, with the run-down of those assets accelerated.

RBS Chief Executive Ross McEwan, who took up the role at the beginning of last month, will set out his vision for the bank publicly for the first time. RBS will also unveil its third-quarter results.

McEwan is expected to consider various options aimed at refocusing the bank on domestic lending, including speeding up the planned sale of its U.S. business, Citizens, and further slimming the bank's investment activities.

A detailed strategic review is not expected until RBS's 2013 results in February.

But Sky News, citing sources, reported that McEwan is expected to say the bank is undergoing a review that could mean substantial cost reductions, including job cuts, and the further shrinking of its investment banking arm.(link.reuters.com/myb44v)

Sky said RBS was likely to signal it is starting talks with the Treasury on reinstating dividend payments by buying out an instrument, called a dividend access share, that gives the state priority over dividends and has been seen as a major obstacle to privatization.   Continued...

 
A woman is seen through scaffolding as she walks past a branch of the Royal Bank of Scotland in London September 17, 2013. REUTERS/Stefan Wermuth