RBS admits further delays in offloading Williams & Glyn

http://www.theguardian.com/business/2016/apr/28/rbs-admits-delays-offloading-williams-and-glyn

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Royal Bank of Scotland is facing further problems in offloading 300 Williams & Glyn branches, in a fresh blow to the management team of the bailed-out bank.

The European Union demanded the branches be separated as the price of agreeing to RBS’s £45bn taxpayer bailout. Lloyds Banking Group was also required under state aid rules to carve out TSB in return for its government rescue.

But on Thursday, the Edinburgh-based RBS said the cost of the spin-out, previously put at £1.2bn, was escalating and it may miss the deadline to complete the disposal – which had already been extended to December 2017. This may make it even more difficult for the chancellor, George Osborne, to further reduce the government’s 73% stake in the bank.

Spinning out the Williams & Glyn branches has already created difficulty for RBS. A sale to Santander was abandoned in 2012 and a subsequent deal was announced in 2013 with a consortium backed by investments from the Church of England to try to complete the separation. Then late last year RBS said it might also consider an auction for the branches. Shares in the bank fell almost 5%, to 240p – well below the 502p at which taxpayers break even on their stake.

“Due to the complexities of Williams & Glyn’s customer and product mix, the programme to create a cloned banking platform continues to be very challenging and the timetable to achieve separation is uncertain,” RBS said. “We have concluded that there is a significant risk that the separation and divestment to which we are committed will not be achieved by 31 December 2017. RBS is exploring alternative means to achieve separation and divestment. The overall financial impact on RBS is now likely to be significantly greater than previously estimated.”

Ross McEwan, who became chief executive in October 2013, is expected to face questions on the problems when he presents the bank’s first-quarter figures on Friday. The announcement was rushed out to the market after the board of the bank – which has not made an annual profit since 2007 – had met to discuss the first-quarter trading statement.

Joseph Dickerson, an analyst at Jefferies, said: “We struggle to comprehend what management have learned about the separation business since their last update to the market on 26 February and also that the separation of this business has been under way since late 2009. The news is negative on two fronts: a potential delay in capital return and also likely higher separation costs. Moreover the delays could call into question management execution of RBS’s restructuring process.”

Analysts are expected to want clarity on any impact on the possibility of payouts to shareholders – currently expected next year.

Lloyds, which admitted on Thursday its first quarter profits had fallen by 46% to £654m, has separated out 600 TSB branches, created a new image on the high street and floated the bank on the stock market before it was sold to Sabadell of Spain last year. TSB relies on Lloyds for its IT, despite being a separate bank, while RBS is trying to create a standalone branch network.