Osborne to review RBS break-up decision in next couple of weeks

This article was last updated on April 16, 2022

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U.K. Chancellor George Osborne will be deciding on the future of the state-controlled Royal Bank of Scotland (RBS) in the next couple of weeks.

British finance minister, Mr. Osborne has said his ministry was actively reviewing breaking up RBS to create a “bad bank” to house its weaker parts.

Mr. Osborne had asked investment bank Rothschild in June to examine if RBS, 81-percent owned by taxpayers, should be made to hive off its problem assets into a separate legal entity. A final decision would be made after Rothschild’s review of RBS’s good or bad assets which are Mr. Chancellor’s top priority now-a-days as the bank cannot be left in its current state.

Mr. Osborne has told: “We are looking at the case for a bad bank and, if not a bad bank, what is the alternative strategy that really gets on top of the problems in that bank and goes on being what I want it to be which is a bank supporting the British economy.”

Currently, the government is considering three choices for dealing with RBS’s problem assets.

The viewed options include either creating a bad bank inside RBS to be regulated under an autonomous team; adopting the model followed by Swiss bank UBS which created a bad bank supported by the Swiss central bank; or creating an entirely separate set up of taxpayer-backed bad bank.

U.S. asset manager BlackRock, outsourced to analyse RBS’s portfolio, had indicated £50-60 billion worth of assets to be placed into any bad bank.

Meanwhile, RBS’s newly recruited Chief Executive, Ross McEwan has said a government review into whether the bank should be broken up is distracting executives looking to revive the fortunes of the state-backed lender. 

Mr. McEwan – who replaced Stephen Hester at the beginning of current month, has said a bad bank would only affect a small fraction of RBS’s overall business.

Analysts have said that the vast bulk of RBS’s assets are likely to be unaffected by the review.

Mr. McEwan has admitted the significance of review in this wake but also added: “The future of this company will not be about whether we operate in particular areas or where our problem assets sit. The future of this company is about how good a job we do for our customers, including those who are having difficulty repaying their loans.”

The 56-year-old New Zealander, has shown the determination to return stakeholders to the top of the agenda after his predecessor, Mr. Hester spent four years repairing RBS’s battered balance sheet. 

Mr. McEwan considered being much credible as compared to Mr. Hester, for spending most of his career in retail banking. Earlier, he was the head of retail banking at Commonwealth Bank of Australia, where he was credited with lifting retail banking profits by 50 percent in five years’ span. 

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