RBS could take £1.5bn hit from plan to drop Williams & Glyn sale


Brussels has launched an investigation into a package of measures the UK Government has proposed that would see RBS boost competition in small business banking and would replace a forced sale of RBS’s 300-branch W&G division, reports the Telegraph.

In a document the Commission has drawn-up ahead of a consultation on the plan, Brussels disclosed that the Treasury has estimated the upfront cost of the measures, the loss of earnings as customers leave RBS, and the money spent operating the package, could mean the total cost to the bank may ultimately double to as much as £1.5bn.

RBS took a £750m provision to cover the upfront cost of the plan in its annual results in February, a week after the package was first proposed the Government. The bank has also spent £1.8bn over almost eight years on various unsuccessful attempts to offload W&G.

In a fillip to RBS, which is still 71 per cent-owned by the taxpayer, the Commission said today that its “preliminary analysis” suggested “the alternative package appears to deliver an equivalent outcome with less execution risks” than a divestment of W&G, which will raise hopes Brussels will approve the plan.

However, it also warned that the lender might have to hike the budget it has set aside for one of the main initiatives in the package.

As part of the £750m plan, RBS has earmarked £100m plus a further £75m in costs for a so-called incentivised switching scheme that would provide dowries for rival challenger banks so that they can offer incentives to attract SME customers away from the taxpayer-controlled lender.

Brussels has cautioned that the switching scheme could fall short of a target of cutting RBS’s share of British SME banking by 2 percentage points.

“The Commission has doubts whether the incentivised switching scheme is large enough to ensure that a transfer of customers equivalent to a market share of 2 per cent of the SME market is reached with a high likelihood,” it said. Improving the scheme “could require increasing its budget”, Brussels said.

If approved by the Commission, the package would finally enable RBS to meet all of its EU state aid obligations in the wake of its £45.5bn taxpayer bail-out at the height of the financial crisis.

Brussels had originally demanded that following its 2008 rescue, RBS offloads insurer Direct Line, payments processor WorldPay, its stake in commodities business Sempra, and about 300 branches later dubbed W&G. While it has fulfilled its other obligations, the lender’s antiquated IT systems have meant divesting the branches has proved impossible to achieve.

An RBS spokesman said: “We believe that the proposed package of measures would provide increased competition in the SME market place, and enable us to deliver a solution on our remaining EC State Aid obligation more quickly and with more certainty.

“We now await the conclusion of the consultation and a formal decision by the EC so that we can move forward towards an assured solution.”