The RBS Expansion Dream Finally Ends

RBS, poster boy of the financial crisis and 70% owned by the government, is finding that despite being in a much smaller banking sector, no amount of customers are going to help them bounce back from the colossal money haemorrhaging of a year ago – it’s set to lose even more assets than expected, as it tries to pay back the government for its stake.

RBS went on a demented rampage of purchasing over the previous decade, bagging larger banks like Natwest, ones they couldn’t afford like ABN Amro, and ones with their toe in the US subprime market like Citizens, plus all sorts of smaller assets like insurance companies. Their unique combination of a vulnerable customer base and an overextended debt position meant that the bank felt the crisis more than most – now their empire is being broken up the European Union, eager to get the banking sector back to its private ways.

Advisors for RBS were telling them a fortnight ago to get rid of the insurance businesses (Privilege, Churchill, Green Flag, NIG and Direct Line) to placate the EU – now it’s looking more like they’re getting prised out of RBS’s reluctant fingers. After all, it looks like Lloyds is managing not to lose any of its assets, instead planning the largest rights issue in history to generate quick liquid funds as payback. RBS must have been hoping to remain equally unmolested; they had managed to hang onto the insurance businesses earlier this year, reversing the selloff desperately initiated by Fred Goodwin at the heart of the crisis. But the EU is playing hardball, and as well as the insurance businesses, they could lose Citizens, hundreds of branches, and see their investment banking operations scaled back. After the orgy of expansion, the party is well and truly over. 

Stephen Hester, RBS’s biggest cheese, is especially unhappy about potentially losing Citizens, saying that it’s a crucial part of RBS’s plan for emerging from the mire – with its 1500 branches, it’s a pretty sizeable cash generator, and the likelihood of getting a decent price for it is fairly low given the pressure on them to sell and the still relatively depressed marketplace. It of course would also sever RBS’s transatlantic ties, and severely set back their expansion.

So how will the high street change after all these sell-offs? Alastair Darling is keen to inject some more competition into the banking sector (we’ve already seen the potential suitors lining up for Northern Rock), and so we’ll see some brand new names on the high street pretty soon. Northern Rock’s quality assets will be parlayed into the astoundingly generic “BankCo”, while RBS’s branches will be taken over by the rakish and dashing “Williams and Glyn’s”, a venerable brand sucked into RBS in the mid-80s. The Sunday Telegraph, who reported these new banks, also said there’ll be one called “The TSB”, which truly is the brand that refuses to die.

A statement released by RBS today says that there should be an announcement before Friday on exactly which bits they’re going to lose. The adverse reaction on the stock and currency markets seems to endorse the fact that this is the sound of a bubble bursting.

Photo: Heart of Oak

Posted by Ben Beaumont-Thomas in Hot Money | November 2, 2009 12:34PM |