LEX Gordon Brown certainly has chutzpah. Claiming credit for introducing fresh competition into the banking sector is as preposterous as asserting that Britain was “best placed” to weather the recession. UK consumers have to thank Neelie Kroes, European Union competition commissioner, not the government. Even investors with the shortest memories can recall that the Treasury blessed both banks’ recovery plans in February and that the prime minister not only brokered Lloyds’ merger with Halifax Bank of Scotland but also threw in a waiver from competition rules. Either way, the news yesterday that RBS must now undertake disposals marks the start in earnest of the dismantling of Sir Fred Goodwin’s empire.
The recovery plan that Stephen Hester, RBS’s chief executive, outlined in February is now being rewritten by Brussels. The forced sale of RBS’s insurance businesses and 300 or so former Williams & Glyn’s branches, along with further shrinkage of global banking and markets assets, will leave RBS’s funded balance sheet (excluding derivatives) more than 40 per cent smaller than at its peak.
The revised terms of RBS’s participation in the government’s asset protection scheme give it flexibility to benefit from improving market conditions. The government receives the same number of B-shares as before, taking its economic interest to 84 per cent. But instead of forgoing £9bn-£11bn of deferred tax assets, RBS will purchase the insurance on a pay-as-you-go basis, with an annual fee of about £1bn. The government will then be on the hook for 90 per cent of losses on perhaps £280bn of assets, down from £325bn previously, but only after RBS has absorbed a much higher first loss. Originally set at £19.5bn, this jumps to £37.5bn, or £60bn including the £23bn hit already recorded. End of empire is always a muddy, bloody business.
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