Fitch warns on breaking RBS into bad bank

Tim Wallace
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RBS IS recovering and breaking it into a so-called good bank and bad bank could be an expensive mistake for taxpayers, credit ratings agency Fitch warned yesterday.

Splitting it into two and selling off the good part would leave the taxpayer with more toxic assets than is currently planned, as well as pushing up the national debt.

Such a move would also create uncertainty for investors, possibly dilute the government’s shareholding in the bank and require the approval of minority shareholders – the government owns an 81 per cent stake.

“RBS’s solid half-year earnings, based on an increasingly robust balance sheet, are likely to reduce the benefit of implementing a bad bank split, as currently being considered by the UK government,” Fitch said.

“A bad bank split is unlikely as we believe the costs, obstacles and uncertainties involved in transferring some assets to a state-run bad bank would exceed the benefits, in particular to the UK government as majority shareholder in the bank and potential acquirer of assets from the bank.”

The Treasury has appointed Rothschild to analyse RBS, weighing up the costs and benefits of splitting the lender in two.

It will look at factors including how the good and bad assets could be identified, the pace at which a split could happen and the potential for a quicker sale of the good bank part.

The Treasury and the Banking Commission also want to see if freeing the bank from its bad assets could allow it to increase lending more to the benefit of households and small firms.

Rothschild is expected to report back in the Autumn.

“A new chief executive with retail banking pedigree could lead to a strategy more focused on the UK and further reshaping of the markets operations, which would reduce risk-weighted assets, volatility in income and tail risk,” said Fitch.