Royal Bank of Scotland no closer to privatisation: US verdict key to providing clarity, say sources

 
Oliver Gill
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Lost without certainty: RBS needs to clear two key problems before the government can think about selling its shares (Source: Getty)

Uncertainty over the level of fines to be levied on Royal Bank of Scotland is blocking the pathway towards privatisation, despite news the state-back lender has upped its provisions for penalties by £3.1bn.

RBS today revealed it had set aside more money to cover fines relating to the issuing and underwriting of US residential mortgage-backed securities (RMBS). Total provisions for such matters were increased to £6.7bn.

The US Department of Justice (DoJ) is yet to rule on the level of fines it will impose on RBS, although last year it emerged penalties could top $12bn.

"Putting our legacy litigation issues behind us, including those relating to RMBS, remains a key part of our strategy,” RBS chief executive Ross McEwan said this morning.

Certainty

However sources close to UKFI, the company set up to manage the UK government’s shareholdings in banks following the financial crisis, told City A.M. that until there is more clarity from the DoJ, selling off the state’s shareholding in the bank is unlikely.

“Setting aside the money is one thing,” the source said.

It’s a waiting game. The Department of Justice will come out when the Department of Justice wants to come out.

Up until that point there is nothing on the cards in terms of a share sell.

The multi-million dollar fine from US authorities is just one of two key issues that needs to be resolved before UKFI can start making plans to divest their shareholding.

The vexing question of how to sell RBS’ subsidiary Williams & Glyn (W&G), a condition imposed by European authorities as part of the government bailout in 2008 of the lender, is the second conundrum that needs to be sorted.

The European Commission originally set a deadline of the end of 2017 for the sale of W&G. Last October, RBS revealed despite splashing over £100m to prepare the 300 branch network for sale, cutting the subsidiary adrift was not going to be possible within the current timetable.

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