RBS Breakup Unlikely as Costs Outweigh Benefits, Fitch Says

Royal Bank of Scotland Group Plc, the U.K.’s biggest state-owned lender, is unlikely to face a breakup as the costs would outweigh the benefits, Fitch Ratings said.

“It’s difficult to imagine a restructuring being sanctioned that would increase risk for bondholders without also reducing value for shareholders -- most obviously the U.K. government,” the ratings company said in a statement today.

Chancellor of the Exchequer George Osborne said on June 19 he’d review whether to break up the Edinburgh-based bank because it’s still burdened by too many poor assets for the government to start cutting its 81 percent stake. He appointed Rothschild, BlackRock Inc. (BLK) and Slaughter & May LLP to review RBS’s structure after former Bank of England Governor Mervyn King told lawmakers in March the lender should be fully nationalized and then split up, with the “good” part sold to investors.

The government would risk falling foul of European Union state aid rules and diluting its stake in the lender in a split, according to Fitch. The Treasury would also have to include the bad bank’s assets in government debt figures, adding to public borrowing, Fitch said.

RBS’s “solid” half-year earnings and the increased robustness of its balance sheet are likely to reduce the benefit of such a split, Fitch said, adding that it was leaving its A rating on the bank’s senior unsecured debt unchanged.

Shares Rise

The stock rose 3.5 percent to 344.70 pence in London trading today for a market value of about 39 billion pounds ($61 billion).

Since its 45.5 billion-pound rescue in the financial crisis, the bank has shrunk assets by almost half, or 900 billion pounds, and cut 41,000 jobs out of 199,800. Assets that the bank plans to sell or run down totaled 53 billion pounds at the end of the first quarter, down from 258 billion pounds at the end of 2008.

Uncertainty over the future direction of the business led Moody’s Investors Service to put RBS’s A3 long-term debt and deposit ratings on review last month.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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