The Treasury must set RBS free as corner is turned
Ten long, painful years. Hard to believe but the anniversary has just passed since the implosion of two hedge funds that were part of Bear Sterns triggered the financial crisis, unleashing a decade of misery that continues to be felt today. Yet, as this dubious milestone passes, the slow and hugely expensive turnaround of Britain’s banking system may finally be in sight after another major hurdle was removed last week.
The approval of Brussels for a small business lending scheme that allows RBS to avoid the forced sale of its Williams & Glyn branches is a hugely significant victory for the bank.
An attempt to dispose of the assets proved to be one of the most costly time-wasting exercises seen in a long time, so common sense has finally prevailed on that front. And anything that helps to boost small business lending should be warmly welcomed.
More importantly, it means just one remaining obstacle stands in the way of RBS’S return to full public ownership, an event that would truly draw a line under the post-crisis years.
Having agreed a £4.2bn settlement with the US regulators over the sale of toxic sub-prime mortgages earlier this month, the remaining issue is a separate fine from the Department of Justice over the same sub-prime mortgage activities in which RBS was one of the biggest players as the financial crisis unfolded.
The wait is likely to drag on. With the DOJ in disarray under Donald Trump, management are unable to get any sense of the size or the timing of the penalty.
The uncertainty continues to weigh on RBS’S share price, particularly as estimates of the payout range from £4bn to £15bn, and the Treasury’s appetite for selling down its stake.
RBS won’t be drawn on what it thinks the figure will be, not even privately, but analyst consensus leans towards the lower end of a range, between £5bn and £6bn. With roughly £3bn left in the bank’s compensation pot, a further £3bn in provisions may be required to draw a line under the past.
The bank is genuinely in the dark about the Treasury’s thinking but that isn’t stopping it from looking to the future. Management is preparing to move on, hopeful that this final matter can be resolved by the end of the year, and that it is the catalyst for the Government to begin selling its shares.
Let’s hope they are right. With RBS’S shares currently languishing around the 250p mark, any hope of exiting at the magic 500p profit mark evaporated long ago.
Meanwhile, despite an eye-watering bill from winding down Fred Goodwin’s disastrous empire-building and a series of misdemeanours, the core of RBS is genuinely strong. Even possible acquisition opportunities are being talked about privately.
With several of Ireland’s banks including Permanent TSB expected to be put up for sale, RBS is weighing several possible moves.
A new sense of optimism has been building around Britain’s big banks since Lloyds was returned to private ownership back in May this year.
Barclays, too, is looking to the future. The Government should do the same and get on with freeing RBS from the arms of the taxpayer.
‘Anything that helps to boost small business lending should be welcomed’
Too big to go up in smoke?
COMPANIES outside the financial sector are rarely deemed “too big to fail”.
In the UK, there has been the odd exception. Regulators helped save Thomas Cook back in 2012, concerned that thousands of customers would be stranded abroad.
And when HMV went bust the following year, the big music labels stepped in to ensure it survived, desperate to avoid handing further power to the likes of Tesco and Amazon.
Along with holidays, DVDS, and CDS, we can now add cigarettes to the “protected” list. As we reveal today, efforts are being stepped up to rescue the country’s largest tobacco distributor, Palmer & Harvey.
The company’s deteriorating financial situation has cigarette makers Japan Tobacco and Imperial Tobacco on red alert. These multinationals are loathe to own a company making tiny margins delivering cigarettes but crucially it owes them hundreds of millions, and the pair need to protect a vital part of the supply chain.
My bet is Palmer & Harvey survives with a little help from some important friends.