Royal Bank of Scotland (RBS) could dodge its December deadline to spin off challenger bank Williams & Glyn, after the European Commission (EC) proposed an alternative remedy package to meet its state aid obligations. RBS will take a £750m provision against the proposed measures in its 2016 results, released on 24 February, the day this magazine hits the newsstands.
The commissioner responsible for EU competition policy plans to propose an alternative range of measures that would increase competition for small- and medium-sized banks. This would include providing funding incentives to customers to switch their accounts from RBS to eligible challenger banks, paid in the form of dowries. RBS would also allow customers of these challenger banks to use its branch network for cash and cheque-handling. A fund would also be made available to these banks to improve their banking services. CYBG (CYBG), which along with Santander had previously made an offer for part of the challenger bank, announced it had walked away from discussions.
Selling Williams & Glyn was a condition of RBS's state bailout in 2008. RBS chief executive Ross McEwan said in a statement: "If agreed, it would deliver an outcome on our EC state aid divestment obligations more quickly and with more certainty than undertaking a difficult and complex sale, and would provide the much-needed certainty for customers and staff." Divesting Williams & Glyn has proven difficult. The Bank of England was reportedly scrutinising the deal for the technology risk involved in transferring customers to another lender.
The latest proposal was welcomed by investors, with the shares rising 7 per cent on the day they were announced. This suggested the provision was lower than some had expected. But RBS is far from out of the woods yet. The bank is still awaiting its settlement by the US Department of Justice over the mis-selling of mortgage-backed securities during the financial crisis. Management announced it would take a £3.1bn provision for the litigation during the fourth quarter of 2016, taking the total such provisions to £6.7bn. Just how big a hole this matter will blow in RBS's balance sheet is the biggest unknown.
