RBS Says Costs Don’t End on Aborted Williams & Glyn IPO Project

  • Bank to spend $261 million to end agreements, must repay bond
  • Williams & Glyn likely to be sold at discount to book value

Pulling the plug on Williams & Glyn isn’t going to be cheap or easy for Royal Bank of Scotland Group Plc.

RBS will spend about 200 million pounds ($261 million) to sever agreements with technology providers, contractors and consultants over the next three months as it abandons its plans to make Williams & Glyn a standalone bank, Chief Executive Officer Ross McEwan told reporters at a meeting in London on Friday. He said some of the 6,000 jobs tied to Williams & Glyn will be eliminated, and RBS won’t recover what it’s spent on the project.

RBS has already burned through about 1.4 billion pounds in the past seven years creating a bank that will never open its doors as an independent firm, and the company is now planning to divest the consumer and commercial unit in a trade sale. The Edinburgh-based lender has to sell the business by the end of 2017 to meet European Union state aid rules linked to its 45.5 billion-pound taxpayer bailout in the financial crisis.

“There will be incremental costs involved in a trade sale,” McEwan said on a call with analysts on Friday after RBS reported a 1.1 billion-pound loss for the second quarter. “We have to migrate customers onto someone else’s platform, and that still involves quite a bit of complexity and quite a bit of cost.”

Discount Sale?

Williams & Glyn has about 1.3 billion pounds of equity and will probably be sold at a discount as most major British banks trade below their book value and RBS trades at less than half the measure. “People will have a look, and we do have an obligation to sell,” McEwan said.

For more on RBS’s struggles to sell Williams & Glyn, click here.

The bank has had “positive discussions with a number of interested parties,” RBS said on Friday. The bank received a formal bid for Williams & Glyn from Banco Santander SA this week, people with knowledge of the matter have said. It marks the second time the Spanish lender has tried to acquire the business, which has about 314 branches and 2 million customers.

RBS could see its plan to set up Williams & Glyn as a standalone bank was running into trouble at the end of last year, when slowing economic growth in China began to push back the prospect of rising interest rates. The squeeze on earnings from lower for longer interest rates wouldn’t have made the small bank viable, RBS Chairman Howard Davies told reporters at the meeting. The problem was compounded by the Bank of England’s move to cut its base rate to shore up the economy after Britain voted to exit the European Union.

“If you factor that change in the economic environment and look at how that bank would perform with interest rates lower for much, much longer, that just does not look like a feasible prospect,” Davies said. “The risk we had was creating a bank that would turn out simply not to be viable unless it was merged with another bank.”

No Regrets

McEwan said he didn’t regret the choices taken by the bank, set in motion by former CEO Stephen Hester. Although it’s abandoning plans to make Williams & Glyn a standalone bank, RBS had got about 90 percent of the 625 computer systems it required to do so up and running, and even transferred 5,500 employees to a separate payroll system earlier this year.

The change in strategy will involve the repurchase of a 600 million-pound bond sold to a consortium of investors including Corsair and Centerbridge in 2013. The bond that gave the private-equity firms the right to own shares in Williams & Glyn after an initial public offering. The bank has paid a “reasonable coupon” on the debt and investors will get their money back with interest, McEwan said.

Scrapping the program also means RBS doesn’t continue with its application for a banking license for Williams & Glyn and create a brand and marketing strategy for the lender, the CEO said. If RBS can’t dispose of the unit within the EU deadline, the European Commission can appoint a trustee to sell the business on its behalf.

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