Royal Bank of Scotland, which remains 73 per cent government owned, has warned there is a significant risk it will fail to meet a deadline to dispose of challenger bank Williams & Glyn.
The bank has warned the costs are likely to be "significantly greater than previously estimated." Shares in the bank instantly fell by over five per cent in reaction to the news.
RBS had been given a deadline of 31 December 2017 to carve out the branches as part of its £45bn state bailout during the financial crisis.
The bank said in a statement:
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.
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 is exploring alternative means to achieve separation and divestment.
Williams & Glyn has 1.8m customers, including 200,000 business customers, many of which are small and medium-sized companies. The bank has around £24bn of deposits and £20bn of net loans across some 300 branches.
Investec analyst Ian Gordon told City A.M.:
The likelihood of the bank returning to private ownership looks like it has now been pushed back 2018. This is materially bad news. This was meant to be something that could have returned a significant amount of cash to shareholders.
The separation process has already cost RBS around £1.5bn and Gordon reckons the costs will continue at around £50m per month until the sale is complete.
RBS is due tomorrow morning to report its first quarter results following a tough three months for its rivals around Europe and in the US.
Lloyds blamed £800m of bonds were redeemed by investors.
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Analysts were expecting flat underlying results from the bank, with a bottom line record loss. The bank has already clocked up eight consecutive quarters of losses.
A previous attempt to offload the bank to Santander in 2012, dubbed project Rainbow, fell apart. The Spanish lender blamed IT issues for derailing its bid.
The government may have to ask European Commission for an extension to the W&G disposal.