RBS ditches plan to sell Williams & Glyn in favour of challenger fund
Royal Bank of Scotland will ditch plans to sell its Williams & Glyn business and instead set up a fund to help smaller, 'challenger' banks, if a new proposal devised by the Treasury is accepted by the European Commission.
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Confirming on Monday the statement it released late on Friday, RBS said it has already taken a £750m provision within its 2016 annual results as a consequence of the new proposal and was likely to absorb further restructuring charges during 2017 and 2018 by re-incorporating the Williams & Glyn branched back into its various franchises.
But the plan has been criticised by the Federation of Small Businesses, which said the proposals would not produce a “proper restructuring” of the market.
Craig Beaumont, head of external affairs at the FSB, said: “The failure to float, sell off or set up Williams & Glyn as a challenger bank is a hammer blow to achieving the level of competition that small businesses want to see in the banking market.”
The Times reported that chief executives of challenger banks Aldermore and OakNorth Bank had said that the proposals may be better for competition than a Williams & Glyn sell-off.
The government rushed to obtain a new agreement to allow RBS to meet its remaining State Aid obligations that were put in place as part of the bank's £46bn state bailout in 2008.
European regulators had demanded that RBS sell 300 Williams & Glyn branches by the end of 2017, but the bank has not been able to secure a deal.
EC Commissioner Margrethe Vestager, who responsible for EU competition policy, will open proceedings to gather evidence on this "alternative plan" for RBS to meet its remaining State Aid obligations.
"RBS has agreed that HMT will now seek formal amendment to RBS's State Aid commitments to pave the way for the Commissioner to propose to open proceedings," the FTSE 100 bank said, while the Treasury will also carry out a market testing exercise in parallel.
Broker reaction
Analysts at UBS said on Monday that they saw the proposal as a positive for RBS and could bring forward its ability to pay dividends.
Although UBS felt EC acceptance of the new proposals was "not a foregone conclusion", the proposals remove the technically challenging task of transferring W&G and should make the State Aid requirements less risky for shareholders.
"The State Aid task and the outstanding RMBS litigation issue are, in our view, the two remaining impediments to restarting dividends."
The analysts said that although the additional £750m charge will make for a bigger loss, they had already expected more than £600m on sale losses for W&G as well as significant associated restructuring charges.
Broker Shore Capital said that it was a "messy solution", but in contrast to UBS felt the changes with the EC "should be largely procedural".
Noting that the £750m charge was equivalent to circa 6p per share, ShoreCap analyst Gary Greenwood said removing the W&G uncertainty "would seem like good news for RBS investors" and not only could see RBS recommence paying dividends but also bring the UK government closer to selling off more of its 72% stake.
"In addition, the group will get to retain the ongoing earnings generation of Williams & Glyn’s branch network and customers, to the extent that these are not lost as a result of the new package of measures designed to boost competition," he said, though the exact details of how the new package of measure will work are somewhat limited.