RBS must tackle capital issues before share sale: UKFI

Tue Nov 12, 2013 8:02am EST
 
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By Matt Scuffham and Steve Slater

LONDON (Reuters) - Part-nationalized Royal Bank of Scotland (RBS.L: Quote) must address issues over its capital and future strategy before the government can start selling its shares, the new head of the agency managing Britain's bank stakes told lawmakers.

James Leigh-Pemberton, who will become executive chairman of UK Financial Investments (UKFI) in January, said the outcome of new RBS Chief Executive Ross McEwan's strategic review, due in February, would be a crucial part of the investment case.

"There are certain issues in relation to RBS which absolutely have to be tackled as a precursor to successful reprivatisation: sufficient capital; strategic focus on businesses where they enjoy competitive advantage and higher returns and the normalization of the capital structure," Leigh-Pemberton told parliament's Treasury Select Committee.

Britain is keen to offload its stakes in RBS and state-backed Lloyds Banking Group (LLOY.L: Quote), having pumped a combined 66 billion pounds ($105 billion) into the banks to keep them afloat in the 2008 financial crisis.

RBS, 81 percent owned by taxpayers, said earlier in November it would create an internal "bad bank" to fence off its riskiest assets, part of a raft of measures designed to heal its relationship with the government and speed up its eventual privatization.

"The new plan will enable reprivatisation at least on the timetable that would have been achieved otherwise, and possibly scope to act a little faster," Leigh-Pemberton said.

Britain's financial regulator said in June that RBS had a capital shortfall of 13.6 billion pounds, the biggest of any UK bank. McEwan sees its restructuring plan as part of a process of reshaping the bank to remove all concerns around its capital strength within the next 2 to 3 years.

The bank plans to hold a core capital ratio of about 11 percent by the end of 2015 and 12 percent a year later, which is 3 percentage points above its current position.   Continued...

 
A woman shelters under an umbrella as she walks past a branch of the Royal Bank of Scotland in the City of London September 17, 2013. REUTERS/Stefan Wermuth