RBS Casts Doubt Over Dividend as It Warns on Missing EU Deadline

  • Lender sees `significant risk' it won't sell unit by next year
  • RBS has hit repeated delays in Williams & Glyn disposal

Royal Bank of Scotland Group Plc cast doubt over its dividend plans after warning there was a “significant risk” it would miss a European Union deadline to separate its Williams & Glyn consumer bank by the end of next year.

RBS is exploring alternative means to divest the unit, and the financial impact of the disposal will be bigger than it previously estimated, the majority taxpayer-owned lender said Thursday in a statement. Shares of the bank, which is set to announce first-quarter results tomorrow, fell the most in two months.

The disposal of Williams & Glyn has become a key obstacle for Chief Executive Officer Ross McEwan to overcome before he can return excess capital to shareholders for the first time since the bank required a 45.5 billion-pound ($66 billion) bailout from the U.K. government during the financial crisis. RBS is spending about 50 million pounds a month on the operation to divest the 300-branch division in a process that has faced repeated delays since it was begun in 2010.

“The timetable to achieve separation is uncertain,” the bank said in a statement. “Due to the complexities of Williams & Glyn’s customer and product mix, the program to create a cloned banking platform continues to be very challenging.”

Doubly ‘Negative’

A further delay could push back the resumption of a dividend for RBS. The bank said in February that it was unlikely to meet its previous target of paying a dividend in the first quarter of 2017.

RBS shares fell 4.2 percent to 241.7 pence at 3:11 p.m. in London trading, after dropping as much as 5.5 percent. The bank has fallen about 20 percent so far this year.

“The news is negative on two fronts - a potential delay in capital return and also likely higher separation costs,” said Joseph Dickerson, an analyst at Jefferies with a buy rating on shares. “Moreover the delays could call into question management execution of RBS’s restructuring process.”

The effort to build a technology system and complete other tasks for separating the unit, which focuses on commercial lending and retail checking accounts, is consuming the effort of more than 5,000 staff at RBS. The company is working on about 60,000 project items to split out a fresh computer system, cloning its own technology as a base for about 190 products, McEwan has said.

Longer List

Virgin Money Holdings Plc CEO Jayne-Anne Gadhia said in an interview last month that her bank might be interested, but hasn’t been able to look at the business because RBS isn’t ready to start the selling process.

McEwan in February added the disposal to a list of roadblocks to the lender’s resumption of dividends. Other obstacles include a looming settlement with U.S. authorities over sales of mortgage-backed securities, hitting restructuring targets and the passing of Bank of England stress tests this year. The BOE’s Prudential Regulation Authority is “very interested in us removing” the unit before it allows RBS to return capital to shareholders, he told analysts on a call alongside annual results in February.

EU Deadline

RBS has previously been granted an extension by the European Commission to get rid of Williams & Glyn after an agreed deal to sell the unit to Banco Santander SA collapsed in October 2012, with the Spanish bank citing completion delays. RBS has started looking for another buyer while also preparing the unit for an initial public offering on the London Stock Exchange as a fallback option with the support of a consortium of investors including private equity firms Corsair and Centerbridge.

Under EU arrangements, the U.K. Treasury would have to negotiate any changes in the so-called state aid rules forcing RBS to sell Williams & Glyn, which were imposed as a condition of its taxpayer-funded bailout in the crisis. If RBS fails to meet the deadline and no fresh deal is brokered with the EU, the 28-nation trading bloc can appoint an independent firm to dispose of the consumer unit on behalf of RBS.

The Treasury said Thursday that the disposal of Williams & Glyn is a priority and it would work with RBS.

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