Ditching its attempt to float retail bank Williams & Glyn as a separate business gave further evidence that recovery for Royal Bank of Scotland (RBS) will take much longer than management, and even analysts, expected. The banking giant has spent around £1.5bn in its efforts to spin off the challenger bank, £345m of which was incurred during the first half of this year. But management concluded the associated risks and costs meant it would be unwise to carry on with its plans.
This is more bad news for shareholders in the state-owned bank since the divestment of Williams & Glyn was a condition of dividend payments being resumed. The December 2017 deadline for offloading the division is still in place but management reckon this may be more difficult to achieve in a post-referendum, low interest rate environment. What’s more, given management says the divestment is likely to cost more than the £1.7bn initially forecast, the sale will likely result in more exceptional charges.
Santander UK and newly listed CYBG (CYBG) have shown interest in acquiring the bank, according to media reports. Santander previously made a formal offer for Williams & Glyn in 2012, but pulled out over IT system complications relating to the separation of its branches. This new purchase would include 300 branches. Ironically, CYBG is currently trying to reduce its number of branches in order to cut costs, but is also in need of greater market share, possibly explaining its interest.
It was hoped the separation of Williams & Glyn would add another element of competition to retail banking. Competition in this market has once again come under the spotlight after the Competition and Markets Authority (CMA) this week called for banks to adopt new digital services and set their own limits on overdraft fees.
The watchdog wants banks to alert customers when they are falling into an unarranged overdraft to help them avoid charges. It estimates around a fifth of current account holders in the UK have unarranged overdrafts, generating around £1.2bn for banks in 2014. UK banks should also publish information online about the quality of service and alert customers about changes such as branch closures, to prompt customers to check they are getting a good service.
The aim of the two-year investigation – which some critics say hasn’t gone far enough – was to galvanise personal and small business banking customers. While Lloyds (LLOY) has a competitive advantage thanks to its acquisition of HBOS in the midst of the financial crisis, high street banks have been introducing promotional deals to try and encourage savers to switch their accounts.
