RBS share price: Group could take £1.5bn hit from new W&G plan

Costs for abandoning sale plan could ultimately double

RBS share price: Group could take £1.5bn hit from new W&G plan

The European Commission has warned that a £750-miliion plan allowing Royal Bank of Scotland Group (LON:RBS) to avoid the sale of its Williams & Glyn business could ultimately double to £1.5 billion, The Telegraph has reported. The news comes after Brussels recently said that it would investigate the alternative proposal.

RBS’ share price has fallen deep into the red in London this morning, having shed 1.34 percent to 228.30p as of 09:26 BST, underperforming the benchmark FTSE 100 index which is currently 0.44 percent worse off at 7,316.40 points. The group’s shares have lost about 0.5 percent of their value over the past year, but are up by more than one percent in the year-to-date.

The Telegraph reported yesterday that the Commission had disclosed in a document in relation to the W&G investigation that the Treasury had estimated that 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 £1.5 billion.

The lender took a £750 million provision to cover the upfront cost of the plan which will allow the lender to scrap the sale of the W&G business. The FTSE 100 group is required to divest the branches by the end of the year as a condition of its taxpayer-funded bailout during the financial crisis, but has hit a series of setbacks. The alternative plan includes an incentivised switching scheme which would provide dowries for rival challenger banks so that they can offer incentives to attract SME customers away from the taxpayer-controlled lender.

“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 two percent of the SME market is reached with a high likelihood,” Brussels said, as quoted by the newspaper, adding that improving the scheme “could require increasing its budget”.

An RBS spokesman told The Telegraph that the blue-chip lender now awaited “the conclusion of the consultation and a formal decision by the EC so that we can move forward towards an assured solution”.

As of 09:56 BST, Thursday, 13 April, Royal Bank of Scotland Group share price is 228.30p.

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