RBS ditch plans to set up new bank offering after £2bn loss

In August, RBS published their half-yearly financial results, revealing a £2.05 billion loss. They blamed this on a number of factors; namely historically low interest rates and the fallout from the EU referendum. These losses and uncertainties have led RBS to announce that they do not believe Williams and Glyn would prosper as an independent bank.

Why was Williams & Glyn being created in the first place?

In 2009, RBS announced that all 311 branches in England and Wales, and the 7 Natwest branches in Scotland, were to be divested by RBS under the dormant Williams & Glyn brand. This was in order to comply with European Union state aid requirements.

After the financial crash in 2008, the European Union funded a £45 billion tax payer bailout of RBS. However, a term of this bailout was that they divested their public offering. This was to prevent RBS, Britain’s largest small business lender, and responsible for 1 in 4 loans in the sector, from having an unfair advantage and posing a threat to the EU economy. Hence, RBS has spent 8 years rebranding their service into Williams and Glyn, before being obliged to sell it. The process was originally intended to take 4 years.

Under the European Commissions revised state aid decision of April 2014, RBS is now obliged to have offloaded the Williams & Glyn divestiture by the end of December 2017.

What if RBS miss the December 2017 deadline?

The precise penalties for missing the second deadline are not clear, but it is likely either shareholders or taxpayers will end up footing the bill.

“If it doesn’t happen on time the British government must fine RBS and if it doesn’t, the European Commission can fine the British government. I don’t think the taxpayer taking a fine for RBS would be politically acceptable,” one large investor in RBS said.

If RBS has not sold Williams & Glyn by the deadline, then the European Commission have the authority under the original terms to appoint a trustee to sell the divestiture at “no minimum price.” There is already a precedent for such a move; when the National Bank of Greece was forced to sell its Turkish Finanzbank for a grossly undervalued €2.7bn in December 2015.

Why have RBS ditched plans for Williams & Glyn?

The move has come as a result of the myriad of problems RBS has encountered in trying to offload the service. In August 2010, it was announced that Santander was to pay around £1.65 bn for the branches, and launch them as part of their Santander UK offering. This deal was expected to be completed by December 2013. However, Santander withdrew from the deal in October 2012.

In October 2015, RBS submitted an application for a banking license for Williams & Glyn, alongside publishing the transition plan. The formal launch of the bank was originally intended to take place in early 2017, with customers being able to access the Williams & Glyn website, mobile and telephone banking services, and receive new bank cards and bank details. To facilitate all this, RBS has to create separate internet and telephone banking systems, submit planning applications, create a new stand-alone ATM network and complete many other processes for restructure.

The restructuring costs of such a transition have been significant, with the bill for 2016 at £1.5bn. The costs for the last quarter alone were £301 million, which contributed heavily to RBS’s total £469 million loss. Abandoning the plan, which has already cost so much, is a “devastating blow to the bank”, said Conservative MP Chris Philip.

Deserting the plan is also disappointing for RBS shareholders, as offloading Williams & Glyn was a precondition for resuming dividend pay-outs after the financial crash. “The timing of returning excess capital to shareholders through dividends of buybacks remains uncertain”, RBS has said.

Mis-selling costs trouble RBS further

Contributing to RBS’s losses are the billions they have had to set aside to cover lawsuits and mis-selling costs. They are facing a huge fine from the US Department of Justice for mortgage bond mis-selling, and the fine is potentially so large that RBS has admitted it may have a significant impact on when its shareholders begin receiving dividends.

Moreover, in 2013, RBS revealed that they would be contacting thousands of its customers who were sold an Autopilot Bond through their Financial Planning and Advice service, following an admission to the FCA that these products were mis-sold. The Bank has had to put aside a considerable sum in order to provide redress to affected customers.

Finally, RBS announced in August that they had put aside £1.3bn in just 3 months for lawsuits and mis-selling costs, and earlier this month, they announced £400 million had been reserved in order to offer redress to clients who had suffered at the hands of their Global Restructuring Group (GRG).

Here at Cooper Stern, we have expertise in dealing with both Autopilot Bond and GRG claims and providing guidance to those affected. If you would like to find out if you have an Autopilot Bond or GRG claim, please contact us and one of our specialists will be able to assist.


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