RBS may dodge split by cutting bad loans faster

 
Tim Wallace
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RBS COULD be forced to wind down its toxic assets and sell off its overseas arm more quickly than expected, rather than being broken up fully into a good bank and bad bank, under plans to be presented to the chancellor in the near future.

The state-backed bank is under threat of being broken up as the government looks to encourage it to lend more.

Though rival bailed-out bank Lloyds has returned to profit and the government has started selling its stake, RBS is still labouring under the volume of bad loans run up in the pre-crisis years, largely in Ulster Bank.

The government hired investment bankers from Rothschild to look into cutting off those bad debts, cleaning up RBS and letting it expand once more.

However that could prove expensive and difficult, so an alternative is to accelerate the current plan, running down or selling off the bad loans more quickly, and selling the bank’s US arm Citizens more rapidly.

The rapid sell-off could be costly too the bank, as a forced sale of bad loan portfolios may lose some value, but it would clean up the bank more quickly.

One way to sweeten the deal could be to allow the bank to pay dividends in the near future, with the Sunday Telegraph reporting the Treasury could cancel its Dividend Access Share which currently blocks any dividend payments to investors.

Rothschild’s report is due imminently, and a decision could be announced around the bank’s third quarter financial results this Friday.

The Treasury and RBS declined to comment.