RBS must tackle capital issues before share sale: UKFI

Tue Nov 12, 2013 10:56am EST
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By Matt Scuffham

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 critical in determining whether the bank is attractive to investors.

"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, adding that it was too early to say when a sale might take place.

Outgoing UKFI chairman Robin Budenberg told the committee that a sale of the government's shares in RBS had not been a serious prospect at any time in the past two years.

Looking to illustrate UKFI's independence, Budenberg said UK Finance Minister George Osborne had proposed steeper cuts in bankers' bonuses than were "commercially acceptable" at RBS and Lloyds, but the agency had intervened to limit the reductions.   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