The Edinburgh institution, which is about 83% owned by the U.K government after a £45.5 billion bailout during the credit crisis, confirmed it would probably ask Brussels for longer to sell the branches. News of the timing slippage came as Royal Bank announced a £5.17 billion pretax loss for 2012 because of a string of charges, including a £381 million transatlantic settlement over Libor fraud, and compensation to consumers and small businesses for "missold" products.
Royal Bank asked UBS to relaunch the branches auction after Santander scrapped the agreement in October, more than two years after the original August 2010 deal. In a presentation CFO Bruce Van Saun said the institution was "working towards the best possible outcome and will likely require an extension" to the EC deadline.
"There are several ways we can go in terms of the transaction but the baseline case is the creation of a standalone bank," he said.
Royal Bank rival Lloyds Banking Group plc has also struggled with an EC-mandated disposal of about 630 branches and its outline deal with Co-operative Group Ltd. currently hangs in the balance as regulators continue to fret about the Manchester, England-based mutual's ability to digest a business which would in a stroke treble its banking branches.
News Wednesday that regulators plan to cut the amount of capital new entrants to the banking market will require may help both institutions by widening the pool of potential bidders for the respective branches. The regulatory change supports the government's pro-competition agenda in the banking sector. Until now, a handful of would-be new banks which emerged during the height of the credit crisis have gained little traction.
Royal Bank also confirmed it would sell a stake of about 25% in Providence, R.I.-based RBS Citizens Financial Group Inc. in about two years' time. Citizens, which Royal Bank has been restructuring to improve lackluster returns, had 2012 operating profit of £754 million, compared with £ 537 million in 2011. It employs about 14,700.
Some observers have suggested that Royal Bank of Scotland was bullied into the Citizens' selloff by politicians and regulators. Chairman Philip Hampton stressed that the selloff plan was endorsed by Royal Bank of Scotland's board.
CEO Stephen Hester added of the planned IPO: "You can think of that in few different ways, from an FPC standpoint, think of it as contingent capital. From our point of view I hope it will showcase the value that we believe we will have restored in that business."
The U.K. bank also confirmed that it would slash assets at its markets unit, which houses its remaining investment banking operations. It wants to reduce risk-weighted assets at the unit from £101.3 billion as of year-end to about £80 billion.
Chairman Hampton also fuelled expectations the government would look to begin selling down its stake next year.
"We are no coming to the end of the really material changes the bank needed to make," he said. Of the expected government selldown, he added: "If that can be done in 2014 that would be great progress."
French mergers and acquisitions lawyer Laurent Faugerolas joined Dechert LLP. For other updates launch today's Movers & shakers slideshow.
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