How times change.
Four years ago, Royal Bank of Scotland was an unprofitable, government-owned bank trying to sell a swathe of branches to Spain's Santander after receiving a record bailout.
Today, RBS is still an unprofitable, government-owned bank trying to find a buyer for Williams & Glyn -- only this time in a post-Brexit world of uncertainty.
It's a telling example of just how protracted, costly and glacial RBS's turnaround has become. The bank's miserable second-quarter net loss of 1.08 billion pounds ($1.4 billion), more than quadruple -- yes, quadruple -- what analysts estimated, was stuffed with charges for litigation.
RBS has done a lot of work since 2008 to cut down in size, shore up its balance sheet and put its past misconduct behind it, yet with revenue falling and a slowing British economy ahead, there's clearly more pain to come.
The sale or spin-off of Williams & Glyn, imposed by European regulators after the bank's government bailout, was supposed to be one of the last remaining hurdles to the bank resuming its dividends.
RBS has spent a colossal 1.4 billion pounds trying to turn these 314 branches and 2 million customers into an independent entity ripe for an initial public offering, according to my Bloomberg News colleague Richard Partington. That was no small task considering the hair-raising complexity of the bank's creaking IT systems.
On Friday, RBS scrapped the IPO and said it will instead pursue "alternative" ways to ditch the unit -- a straight sale of customers and assets, in other words. That's fair enough, given the likely lack of investor appetite for another small standalone lender.
Shares of so-called challenger banks like Aldermore, Clydesdale and Virgin Money are between 10 and 30 percent off their levels before the Brexit vote, and a looming economic slowdown means the outlook for lending margins and impairments is bleak.
But it's still an admission of failure and holds the threat of yet more wasted money.
Paradoxically, Brexit may actually help RBS lure a buyer. As Bloomberg Intelligence's Jonathan Tyce notes, the pound's fall since the referendum and the Bank of England's decision to cut interest rates to a record low make the unit cheaper for overseas buyers. That would include Santander and Sabadell (both of which own U.K. subsidiaries) or BBVA, which has recently invested in small lenders, among them Atom.
Banks that are stuck in the U.K. now have an incentive to boost lending and their market share, thanks to the Bank of England's planned Term Funding Scheme. The program will reward banks that grow lending with cheap financing, helping to mitigate the pain from low interest rates. For Santander or Sabadell, that might be an opportunity to grow -- even if the economy slows further.
Williams & Glyn's net interest margin and cost-income ratio compares favorably with Virgin Money or Aldermore. Those two lenders trade at only 10 percent discount to book value. Williams & Glyn's book value is about 1.3 billion pounds -- but RBS is likely only to get a heavily discounted offer, possibly of less than 1 billion pounds.
That's because bank's negotiating position is weak. Regulators have ordered RBS to complete the sale by the end of 2017. U.K. loan growth is likely to cool. RBS's financial performance is getting worse, not better. The lender has admitted the spin-off project is costing about 50 million pounds a month, with 5,000 employees working on it.
The Williams & Glyn story was supposed to end happily for RBS shareholders. So far, it's been unhappy and without an ending.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Lionel Laurent in London at email@example.com
To contact the editor responsible for this story:
Edward Evans at firstname.lastname@example.org