RBS split into 'good' and 'bad' banks unlikely, says Fitch
A break-up of state-backed UK lender Royal Bank of Scotland is increasingly unlikely as the costs would outstrip the benefits, rating agency Fitch said on Wednesday.
The UK government launched a review in June to study whether it should hive off RBS' remaining toxic assets and bad loans into a so-called 'bad bank'.
If it was implemented, the plan could theoretically leave the rest of RBS, which is 81% taxpayer-owned after its state bailout in the financial crisis, better able to satisfy demands for more loans to cash-strapped consumers and businesses.
But Fitch said the costs, obstacles and uncertainties involved in transferring some assets to a state-backed 'bad' bank would exceed the benefits.
RBS' solid half-year earnings, in which it made a pre-tax profit of £1.4bn in the six months to the end of June from a loss of £1.7bn a year before, were also likely to reduce the appeal of a split, Fitch said.
Fitch said: "RBS has just proved, in its recent set of results and following the UK Prudential Regulatory Authority's recent adjusted capital requirement test, that it can continue to operate viably under its current plans."
The rating agency said the most likely outcome was for RBS to cut debt further, partially float its US Citizens business and reduce and re-shape its markets business.
Earlier this month, RBS confirmed New Zealander Ross McEwan as its new Chief Executive to replace outgoing Stephen Hester and pave the way for the government to sell its stake, although Business Secretary Vince Cable said on Sunday that this was unlikely before 2018.
McEwan joined RBS as Chief Executive for UK retail in September from Commonwealth Bank of Australia. He is thought to be a politically acceptable candidate who would help RBS concentrate on high street and commercial banking.
Fitch concluded: "A new chief executive with retail banking pedigree could lead to a strategy more focused on the UK and further re-shaping of the markets operations. But Ulster Bank will remain a drag on capital as it isn't expected to become fully profitable until the medium term."
Shares in RBS were up 3.45% to 344.5p at 15:55 on Wednesday.