Meet the new £38bn RBS internal bad bank same as the old Non-Core bank:
More than half of the above is supposed to be gone in two years, with “no more than” 15 per cent left clogging the UK bank’s balance sheet after three years. According to the plan.
It’s mildly interesting to note RBS using the opportunity to shift stuff around: “Approximately £10 billion to £12 billion of assets currently managed in Non-Core will be returned to relevant Core divisions…”
But firstly, why was the Treasury so wary in the end of setting up an external bad bank? (Apart from the Chancellor never having liked the idea)
You can turn to the mere 150 pages or so of its review for an idea of that — in which Rothschild, BlackRock Solutions, and Slaughter and May have no doubt expensively told the government the enormous bank it owns is one of “sheer complexity” (really?) and set out options for funding any bad bank.
The advice (see Chapter 9) dismisses a few “synthetic structures” — halfway houses where RBS would still technically hold assets but the government would enter into a total return swap with the bank, or protect a subsidiary holding the assets against losses — before getting to a directly owned and funded bad bank. But ultimately that collapses too, in part because of “value-destructive” EU State Aid rules.
Weirdly enough, there’s no mention of the waiver that the Treasury was supposed to have requested from any application of the latest rules, which could have required shareholder and junior bondholder losses. Surely a waiver would have made it easier. Instead, just a note that “the Government has not engaged in detailed negotiations with the European Commission as to the likely parameters of a package of remedies…”
So you could call the review pointless, and the internal bad bank window-dressing.
Then again… RBS is already practically operating as a government agency anyway. Exhibit A on Friday: the bloodless “business review” also in the IMS…
To capture the full potential of its customer businesses RBS is undertaking a comprehensive business review of its:
○ Customer-facing businesses
○ IT and operations
○ Organisational and decision-making structures
The review will aim to improve the bank’s performance and effectiveness in serving its customers, shareholders and wider stakeholders…
Do catch the video: