Print | Share | Reprint

Royal Bank's Hester downplays talk of U.K. stake sale

by Laura Board | Published May 4, 2012 at 11:08 AM

Royal Bank of Scotland Group plc CEO Stephen Hester on Friday, May 4, downplayed speculation the U.K. government will soon begin to sell its 83% stake as he claimed to have reached two "important milestones" on the restructuring lender's road to recovery.

Announcing first-quarter results, Hester said the bank will resume paying dividends on preferred shares and will next week pay back the outstanding emergency loans it received from the government and the Bank of England during the financial crisis.

Royal Bank of Scotland, the parent of Citizens Financial Group Inc., came close to collapse after leading a consortium buying the Netherlands' ABN Amro NV for a record €72 billion ($94.6 billion) in October 2007. It ceded the 83% stake to the government through a series of bailouts beginning in November 2008.

The government paid a "blended" price of 50 pence per share for its stake, which it holds through financial crisis-spawned vehicle UK Financial Investments Ltd. Members of the Abu Dhabi royal family have in recent weeks been cited as potential buyers of part of its stake. However, when asked about the government's plans during a conference call, Hester said:

"As far as I am aware there is no desire to sell at the current share prices - I find that rather understandable. So while everyone is focused on that as being the end game I am not aware of anything on that front."

He added: "The incentives are there for both parties to move towards the exit but nevertheless there are still uncertainties in the outside world, as reflected in share price of all banks, and we still have heavy lifting to do in our recovery period."

Royal Bank's shares by early afternoon in London were trading at 25.12 pence, up 0.57 pence from Thursday's close.

Hester also said Royal Bank still planned to divest its Direct Line Insurance business through an IPO, despite reported interest from financier Edmund Truell's acquistion vehicle Tungsten. Royal Bank must sell the business to comply with the terms of the European Commission's November 2009 state aid approval.

"We are not holding conversations on anything other than the IPO," said Hester.

The Edinburgh institution said first-quarter operating profit came in at £1.18 billion ($1.9 billion), ahead of consensus forecasts and up from £1.13 billion a year earlier.

Royal Bank early this year began cutting the scope of its investment banking business, with sales including the disposal of brokerage Hoare Govett Ltd. to Jefferies & Co. for a nominal sum. Royal Bank said Friday that balance sheet assets at the unit, which it calls global banking and markets, were down 20% year-on-year at the end of the first quarter. During the quarter, the unit swung back into the black, earning a £824 million profit, compared with a £109 million loss in the fourth quarter.

"We're doing normal amounts of business with our clients and have been able to convert that to a very attractive return on equity. But investment banking is very volatile - there is no point in declaring victory when we are just in the first quarter," Hester said.

Hester also said it would be at least a year before the bank could contemplate paying dividends on its ordinary shares.

During the first quarter, Royal Bank continued its program of slashing assets, cutting funded assets by a further £27 billion to £950 billion as of March 31. Non-core funded assets were cut faster than the bank had projected, down £11 billion to £83 billion, with a further £5 billion of signed transactions in the pipeline, including Sumitomo Mitsui Banking Corp. and Sumitomo Corp.'s agreed $7.3 billion purchase of RBS Aviation Capital.

Share:

Tags: Bank of England | M&A | restructuring | Royal Bank of Scotland Group plc

Restructuring

Royal Bank's Hester downplays talk of U.K. stake sale

Free preview

Meet the journalists

Laura Board

International Editor

Movers & Shakers

Video

JPMorgan's stark choice

Sectors