Published Friday, 01 November 2013
The Royal Bank of Scotland is to create an internal "bad bank" of £38bn of problem assets but avoid a full split, the bank and the Treasury announced on Friday morning.
The 81% state-owned lender revealed the outcome of a four-month review into its future as it said operating profits more than halved to £438m in the third quarter on a year earlier.
RBS avoided a threatened carve-up and nationalisation of its problem loans, and will instead run down the assets at a faster rate.
New chief executive Ross McEwan has also started a full review of the lender which will report back in February, and is to speed up the sale of its Citizens US banking subsidiary, with a partial flotation next year.
Mr McEwan said the plan will "create a bank that can reward the faith of UK taxpayers and all our investors".
The internal bad bank aims to run down up to 70% of the toxic assets within two years, and will contain about £9bn of assets from Ulster Bank, as well as problem commercial property loans.
The future of Ulster Bank, a major lender in Northern Ireland and the Republic of Ireland, will be decided in the review. Mr McEwan refused to say whether its cost-cutting plans will entail heavy job losses.
We welcome today's announcement regarding the outcome of the UK Government's Good Bank Bad Bank Review which confirms Ulster Bank as a core business for RBS and acknowledges the importance of Ulster Bank to the whole island of Ireland.
On Friday, an Ulster Bank spokesperson said: "We will now work through the detail of how we will operate the "bad bank" and the structure required to support this. In the meantime, it is business as usual for our customers and we will communicate directly to any impacted customers.
"Ulster Bank will also be participating in a Group-wide review of the business to be complete in February 2014, with a view to building a really good bank for our customers."
NI Secretary of State Theresa Villiers has welcomed the bank's pledge to its customers in Ireland.
"Moving assets to the 'bad bank' draws a line under the past and the review looks to ensure Ulster Bank's place in the future. The restructuring announced today should give Ulster Bank a greater ability to lend, providing extra help to Northern Ireland business and the economy," she added.
"I have worked closely with Treasury colleagues to ensure the importance of this decision to Northern Ireland was clearly understood and properly considered. RBS's aim to become the best bank for small and medium sized enterprises throughout the UK is particularly welcome."
The outcome of the long-awaited report into splitting RBS, which needed a £45bn taxpayer bailout in 2008, was welcomed by the Bank of England.
Chancellor George Osborne said RBS's new focus will see it being a "boost to the British economy instead of a burden".
RBS will make a substantial loss this year as the faster run-down of assets in the internal bad bank will cause an accounting write-down of up to £4.5bn.
And when including one-off items and an additional charge of £250m to cover redress for the mis-selling of payment protection insurance (PPI), RBS made a bottom-line loss of £63m in its third quarter results.
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