RBS CEO Mulls ‘Uncharted Territory’ of Failure to Sell Unitby
Ross McEwan says bank is ‘having to think about the what ifs’
RBS must sell Williams & Glyn to meet European Union rules
Royal Bank of Scotland Group Plc Chief Executive Officer Ross McEwan indicated he may fail in his plan to sell the bank’s Williams & Glyn consumer and commercial division to a rival lender before the end of this year.
The bank is “having to think about the what ifs,” in the event of being unable to secure a buyer for the unit by the end of 2016, the CEO said at a conference organized by Bank of America Merrill Lynch in London on Tuesday. The Edinburgh-based lender would be “in uncharted territory if we don’t actually sell the assets” by the end of 2016, he said.
Banco Santander SA pulled out of talks to buy Williams & Glyn, which has 314 branches and 2 million customers, earlier this month, two people with knowledge of the matter have said. The Spanish lender may return to the negotiating table if 72 percent government-owned RBS accepts a lower price for the business it’s being forced to sell to meet European Union state-aid rules, the people added. The unit will probably be sold at a discount to its 1.3 billion pounds ($1.7 billion) of equity, Chief Financial Officer Ewen Stevenson said last month.
RBS is still working toward an asset sale after receiving interest from potential buyers for Williams & Glyn at the end of last year, McEwan said at the conference. He scrapped plans for an initial public offering last month because the unit probably won’t be profitable on its own. Even so, the business “remains attractive to the right owner,” McEwan said.
The shares traded down 3.2 percent to 171.8 pence at 1:12 p.m. in London, marking the biggest decline among the U.K.’s major banks. It’s unclear when the U.K. government will reduce its stake in the bank as it trades at less than half the 407 pence a share at which taxpayers would break even on the state’s 2008 and 2009 investment.
Although McEwan said Tuesday he’s looking to sell Williams & Glyn by the end of this year, RBS has until the end of 2017 to dispose of the unit to meet an EU agreement tied to the bank’s 45.5 billion-pound bailout during the financial crisis. Failure could result in the trading bloc appointing its own adviser to divest the unit.
The disposal is a key hurdle RBS must overcome before it can pay dividends for the first time since its bailout. RBS has spent about 1.4 billion pounds trying to sell the bank over the past seven years, and has said it will probably spend a further 200 million pounds to scrap the computer system required for an IPO.
Like other major British lenders, RBS faces lower income from lending after the Bank of England cut interest rates following Britain’s vote to leave the EU on June 23. McEwan said his bank will update investors about his plans to handle revenue pressure when RBS reports full-year earnings in February.
“With the outcome for income now more challenging, we know that we need to be tougher on costs,” he said.
RBS said last month it would probably take longer than expected to reach targets for profitability. After the BOE rate cut, it’s now more challenging for the bank to reach its 2019 targets for a cost-to-income ratio of below 50 percent and a 12 percent return on tangible equity, the company said.