RBS Seen Facing Bigger Consumer Banking Spinoff Amid Review

Updated on

Royal Bank of Scotland Group Plc could be forced to spin off a larger part of its British consumer bank as part of a review of its business by the antitrust regulator.

RBS may have to give more assets to its Williams & Glyn business, which has 307 branches in the U.K., according to analysts at Numis Securities and Sanford C. Bernstein & Co. The U.K.’s Competition and Markets Authority said on Thursday it had been asked by the government to “identify if more could be done” with Williams & Glyn to boost competition.

British lawmakers are seeking to help smaller lenders challenge the dominance of the four biggest banks, including RBS, which control as much as 80 percent of the market. The CMA review echoes a similar push by the government in 2013 that resulted in Lloyds Banking Group Plc giving more assets to its TSB Banking Group Plc consumer business before its sale.

“These reviews never come up unless there is a strong underlying hypothesis,” said Chirantan Barua, an analyst at Sanford C. Bernstein with an outperform rating on RBS shares. “It looks like there will be some beef-ups to the branches or deposits ring-fenced so far.”

TSB got a 4 billion-pound ($6 billion) mortgage assets from Lloyds to help boost profitability by more than 200 million pounds over four years, based on a recommendation by the Office for Fair Trading, which was replaced by the CMA.

‘Working Hard’

“This also happened with TSB,” said Mike Trippitt, an analyst at Numis in London with an add rating on RBS shares. “It was recommended that Lloyds inject an additional mortgage enhancement portfolio to boost near-term profitability.”

Williams & Glyn had about 20 billion pounds of funded assets at the end of March, according to RBS’s first-quarter earnings. Revenue was 200 million pounds and operating profit excluding restructuring costs was 100 million pounds.

Both banks received government aid during the financial crisis and were forced to sell units to meet European Union bailout rules. RBS and Lloyds are still government owned.

RBS said in an e-mailed statement that it’s “working hard and devoting significant resources to establishing Williams & Glyn as a viable, stand-alone bank that will bring increased competition to the retail market.” The bank plans to sell shares in the consumer business in the fourth quarter of 2016.

Forcing RBS to give Williams & Glyn more assets or amend its plan to sell the business would be “counterproductive” at this stage, said Ian Gordon, an analyst at Investec Plc in London with a buy rating on the stock.

“I believe that the Treasury would merely wish the CMA to consider the competitive landscape in the context of the incremental change that a stand-alone W&G should offer going forward,” Gordon said. “Bluntly, there patently is improving choice in the market already.”

The CMA plans to publish its findings in July.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE