A deal between Royal Bank of Scotland (RBS), EU regulators and the UK government could include unplanned disposals, the bank said for the first time today, ahead of a radical shake-up of the UK banking sector.
RBS and Lloyds, 70 per cent and 43 per cent state-owned, respectively, have been locked in negotiations for months with the UK government over an insurance scheme for bad debts, and are in parallel talks with the Treasury and EU over measures to compensate for the billions received in state aid.
Plans for both banks are due to be made public this week, possibly as early as tomorrow, sources have said, as part of a deal which will include large-scale disposals and which the government hopes will create new retail banks.
RBS's recognition today that its deal will include "divestments not initially contemplated" revived concerns it could suffer tougher than expected sanctions, though the bank said it was sticking to its turnaround plan.
"It remains RBS's goal that any required divestments do not threaten its recovery plan which is already under way," it said.
"While details remain sketchy, our reading of the "new" plan for RBS is fairly valuation neutral, but with increased execution risk and raising further questions about the quality of its balance sheet," Jonathan Pierce, analyst at Credit Suisse said today.
A British government source had told Reuters on Friday that RBS was likely to sell its insurance operations, which include the Churchill and Direct Line brands, along with other assets to help reduce the size of its balance sheet.
RBS had put its RBS Insurance unit, Britain's largest car insurer, on the block last year but scrapped the sale this year after failing to garner enough interest.
Reuters