RBS Seen Disposing of Most Bad Bank Assets Ahead of PlanRichard Partington and Stephen Morris
Royal Bank of Scotland Group Plc plans to dispose of most of the toxic assets in its bad bank by the end of this year, 12 months earlier than projected, one person with knowledge of the matter said.
The U.K.’s biggest government-owned lender is on-course to divest or wind down about 85 percent of the 28.9 billion pounds ($43.7 billion) of debt placed in the division at the start of 2014, said the person, who asked not to be identified. That’s as much as Rory Cullinan, head of the unit, planned to cut over three years. A spokesman for RBS in London declined to comment.
RBS’s bad bank has been an unexpected bright spot for Chief Executive Officer Ross McEwan, 57. An economic recovery in the U.K. and Ireland last year boosted the value of assets and allowed funds, previously earmarked for souring loans, to be reclaimed. Still, the government has been unable to cut its 80 percent stake in Edinburgh-based RBS after it reported its biggest annual loss in five years for 2013.
RBS shares fell 0.4 percent to 374.9 pence in London trading on Wednesday, valuing the bank at about 43 billion pounds. The stock is up 9 percent over the past year, remaining below the U.K. government’s 407 pence break-even price.
About 15 percent of the assets placed in the bad bank, named RBS Capital Resolution, will remain on the company’s books because they’re too toxic or long-term to exit within the lifespan of the unit, the bank has said. They include 40-year loans and derivatives that can’t be sold or wound down quickly.
The bank’s ability to further unwind assets of its bad bank will depend on the future strength of the economy at home and abroad. RBS has benefited from a reviving property market in Ireland after a property crash pushed up the share of bad loans in the country. In Britain, the economy last year expanded at the fastest pace since 2007, fueling housing demand.
European banks and asset managers last year sold real estate loans and defaulted properties with a record face value of 80.6 billion euros ($91 billion), as they wound down their soured loans, New York-based broker Cushman & Wakefield Inc. said Tuesday.
RBS was the “most notable” lender to reduce its non-core investments, divesting about 9.6 billion euros of commercial real estate loans and other property assets, according to the Cushman & Wakefield report. That accounts for about 38 percent of the total gross non-core real estate “exposure” held by the U.K. bank at the start of 2014, it said.
Lloyds Banking Group Plc, Britain’s largest mortgage lender, sold about 5.8 billion euros of loans, according to the report.
At Barclays Plc, CEO Antony Jenkins created a non-core business to dispose of 115 billion pounds of assets, including complex derivatives from the lender’s fixed-income, currencies and commodities division. The bank had 81 billion pounds of risk-weighted assets left to sell in the unit as of Sept. 30. John Mahon and Harry Harrison will take over Barclays’s bad bank this year, a person briefed on the matter said this month.
RBS created the bad bank last January to dispose of the majority of loans in the division by the end of 2016 and free up capital to meet new regulations. Assets in the unit declined 38 percent to 17.9 billion pounds at the end of September, placing it on an “accelerated timetable,” the bank said.
The bank said in October it decided to hold onto Ulster Bank after the Irish unit returned to a profit for the first time since 2008 and began to free up money previously set aside for bad-loan losses. Dublin home prices rose 22 percent in November from a year earlier, while values nationwide increased 16 percent, according to the Central Statistics Office. Prices in the Irish capital remain 38 percent below their 2007 peak.
Cullinan is the only member of RBS’s executive committee in line for a bonus this year, a person with knowledge of the matter said this month. Nine other members of the leadership team won’t get a such a payment, the person said.