RBS Share Price: Good Bank/Bad Bank Split Unlikely, Fitch Says

on Aug 15, 2013

iNVEZZ.com Thursday, August 15th: The global rating agency Fitch yesterday said that following strong half-year results and ‘an increasingly robust balance sheet’, a good bank/bad bank split for RBS was unlikely as the costs would outweigh the benefits. Fitch added it decided to leave the bailed-out bank’s rating unchanged as there are too many unknowns at the moment.

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Chancellor of the Exchequer, George Osborne, has hired Rothschild to conduct an analysis whether RBS should be split into a good bank and a bad bank. He is hoping that such a move could make it easier to sell the taxpayers’ 81-percent stake and pump more liquidity into the economy.
The rating agency believes that even in the case of a split, there will be no change in the bank’s Viability Rating. According to Fitch, it is highly unlikely that the restructuring will leave bondholders facing higher risk without also “reducing value for shareholders” which is completely against the government’s privatisation objectives.

Ulster bank is seen as the most troubled part of the RBS group due to the size of its bad loan portfolio and is likely to be spun off in the case of a split. “[..] Ulster Bank will remain a drag on capital, as it is not expected to become fully profitable until the medium term,” Fitch said in a statement.

A split won’t be good for taxpayers, whose money is in RBS at the moment, as it is expected that if a split takes place the bank will sell its worst assets, such as Irish property loans, to a new taxpayer-funded vehicle, thus increasing public debt. Furthermore, under EU state aid rules this sale has to be made at fair value which is below current valuations, creating a big paper loss on RBS’ income statement. The gap between the carrying value of the bank’s loans on its balance sheet and the fair value amounted to £17 billion at the end of the first half-year period in 2013.

“We believe the most likely outcome is for the group to continue to follow its planned capital actions – to deleverage further, partially float its US Citizens operations, and reduce and reshape its markets business,” the rating agency said, adding that one of the biggest risks which the bank faces is litigation and conduct costs concerning legacy business.
**RBS’ share price has gained about 7.5 percent since the beginning of the month. The bank’s shares opened at 345.90p today, almost unchanged. RBS’ share price was 341.70p as of 15.08.2013, 09:52 BST.**


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