U.K. May Delay RBS Sale Over Misconduct Charges, Citigroup Says

The U.K. government’s sale of Royal Bank of Scotland Group Plc shares may be delayed until at least the end of the year because of increasing misconduct charges, Citigroup Inc. said.

Britain’s largest taxpayer-owned bank may take 3.6 billion pounds ($5.6 billion) of charges for outstanding conduct and litigation issues this year, Andrew Coombs, an analyst at Citigroup with a sell rating on RBS, wrote in a note to clients on Friday. That may prompt the government to start selling its 78 percent stake at the end of 2015 at the earliest, Coombs wrote.

Chief Executive Officer Ross McEwan’s efforts to return the Edinburgh-based bank to profit by selling assets and cutting thousands of jobs have been hobbled by past misdemeanors. U.S. regulators have told RBS it could pay as much as $13 billion if it loses a lawsuit over its handling of mortgage securities, although the ultimate value of the settlement may be much lower, according to Bloomberg Intelligence analyst Elliott Stein.

An increasing legal bill threatens to undermine Chancellor George Osborne plans to sell about 25 billion pounds of RBS in the next five years, even though it may cause a loss for U.K. taxpayers. In June, he said he planned to divest about 2 billion pounds of stock in 2015, starting in the “coming months.”

Muted Demand

The Treasury could start selling shares in RBS before the bank reaches a settlement with U.S. regulators, according to a report by Rothschild published by the Treasury last month. But demand for the stock could be muted, investors said.

“It’s still too early to own RBS,” said Eric Moore, a fund manager in London who helps to oversee about 2 billion pounds of assets at Miton Group. “They’re taking great strides but there’s still a few years to go. It’s still a long way from being rehabilitated.”

RBS may swing to a net loss of 168 million pounds from a profit of 230 million pounds on restructuring and conduct costs when it posts second-quarter earnings on July 30, Goldman Sachs Group Inc. analysts including Martin Leitgeb wrote in a note to clients on Wednesday. Citigroup’s Coombs expects investors next week to focus on the timetable for the government sale, litigation and conduct risks, and potential for future earnings.

“When you get through some of the current issues, RBS will be an interesting bank to own,” said David Moss, who helps to oversee $254 billion of assets at BMO Global Asset Management in London. “The mortgage one is the big overhang for them, so they need that out the way before it gets interesting.”

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