Royal Bank of Scotland warned on Friday that it was on course for a substantial loss this year, dashing any remaining hopes of a return to the private sector until after the 2015 election.
Announcing that £38bn of troublesome loans would be ringfenced within the bank, the new chief executive Ross McEwan heralded a "resetting" of the often fraught relationship with the Treasury – owner of 81% of the shares – and the Bank of England, which regulates the bank and is poised to impose tougher rules on capital.
McEwan who took the helm only a month ago after Sthephen Haster was ousted in the summer, said he wanted to end the "weariness" and "defensiveness" that had crept into RBS. He is embarking on a review of all the bank's operations – including its troublesome Ulster operations in Ireland and the already-scaled back investment bank – which will be announced in February. He will accelerate the sale of the US arm, Citizens.
The bar for RBS is higher than for any other bank because we got saved by the UK government," said McEwan. A a highly critical report into its lending to small business found it turning away three out of every four applications for business loans and acting too aggressively towards customers in difficulty.
RBS shares were the second biggest fallers in the FTSE 100, down 7.5% at 340p – well below the 500p average price the taxpayer spent £45bn buying them for – after the bank reported a third-quarter loss of more than £600m.
The study by financial advisers Rothschild, estimated to have cost £9m, stepped back from a full break-up and creation of a "bad bank" suggested by senior figures such as former chancellor, Lord Lawson and former Bank of England governor Lord King.
Instead, about £38bn of troublesome loans – including £9bn from Ulster Bank – will be placed into a new non-core division to be known as the capital resolution division, which the bank aims to wind down in three years. This will mean writing off up to £4.5bn of problem loans in the next quarter – driving the bank to a "substantial loss" for the full year. But some £11bn of capital should be released as a result.
