It’s a really irritating time for the Royal Bank of Scotland right now. It was just on the verge of complying with a competition ruling by offloading 316 of its high street branches to Santander, but the latter has reportedly freaked out at the appalling state of RBS’ computer system. Now it is still lumbered with the branches and the promise of getting less money for them than originally hoped from a new bidder. Both Virgin Money and private equity group JC Flowers are interested, but now that Santander has pulled out, this could easily affect the sale price.
So why are they having to offload the branches in the first place? Well, back in 2008 when the bank was nearing collapse and the British taxpayer stepped in with a bailout, the European Commission imposed a penalty. RBS had to get rid of a bunch of branches ASAP to avoid breaching EU laws about state aid for private companies. We’re now a few years on, suggesting the bank is dragging its feet a bit, but it was on the verge of the sale with Santander.
The collapse of the sale with the Spanish banking group saw shares drop 4% this morning, suggesting shareholders want something decent sorted out as quickly as possible. Sir Philip Hampton, the chairman of RBS, said: ‘What’s changed since the original decision is the climate around state aid. The commission has been much, much more flexible. It used to be a pretty severe regime but they are making different judgements. Governments have to negotiate state aid. As it happens, the UK retail banking market is more competitive now than it has been for decades.’
It is true that the European Commission has had to become more flexible about state aid to avoid governments being forced to allow banks to collapse altogether. Bailouts are tricky business if the EC gets uppity about allowing governments to step in. Nonetheless, RBS is not the only bank being made to pay some sort of penalty for its bailout: Lloyds Banking Group was forced to sell more than 600 branches in a deal currently going through with the Co-Op Bank.
However the sale ends up happening, rest assured that any loss will be footed by the taxpayer (and we’re already £21bn down on the purchase), so we might as well resign to that notion. But on the upside, RBS boss Stephen Hester recently said he thinks the bank could be in a position to support itself and be ready for sale next year. Considering how grave the bank’s situation was in 2008, that is probably a bit of a miracle…