RBS avoids split by fencing off assets into ‘bad bank’

Part-nationalised Royal Bank of Scotland will avoid demands for a full carve-up when a government report calls for soured loans and toxic assets to be placed in an internal “bad bank”, arguing it will improve lending to businesses.

“Today is a defining day for our organisation,” RBS Chief Executive Ross McEwan told BBC Radio 4’s Today programme.

He called the bad assets a “complete distraction”.

“Our objective is to make a good bank out of this so that he [George Osborne] has a great asset to sell,” he added.

A new direction for RBS, dealing with the toxic assets of the past, becoming a British-focused bank. George Osborne on his plans for the British banking system

Chancellor George Osborne is under pressure to boost lending to the economy and speed up RBS’s return to the private sector.

He said he was determined to deliver a banking system that works for the British economy.

“That means a new direction for RBS, dealing with the toxic assets of the past, becoming a British-focused bank, supporting small businesses… so that RBS is a boost to the British economy and not a burden.”

The 81 per cent state-owned lender has this morning revealed its third-quarter results – an operating profit of £438m, down from £909m a year earlier.

We’ve just posted our Q3 results and an operating profit of £438m. Full info here http://t.co/VE8aLjVolu

— RBS Press Office (@RBS_PressOffice) November 1, 2013

Ulster Bank

The chancellor appointed investment bank Rothschild to weigh up the case for a good/bad bank split, but the plan has since faced a barrage of opposition from shareholders.

The creation of an internal, ring-fenced book of problem assets, containing soured commercial property loans and much of Ulster Bank, its troubled Irish business.

But it is not expected that the whole of Ulster Bank – a major lender to Northern Ireland and the Republic of Ireland – will be dumped into into the internal “bad bank”. The plan will avoid the need for a shareholder vote, unlike a full nationalisation of the bad bank, a strategy which faced vocal investor opposition.

RBS already has a “non-core” division and the scale of the new internal “bad bank” is expected to correspond with this – although it could be bulked up with more problem assets.

Read Economics Editor Faisal Islam's blog: Osborne finally achieves economic momentum

Currency markets probe

Traders are understood to have been suspended at RBS and Barclays on Friday in connection with the possible fixing of currency markets as a global investigation widens.

Reports suggest Barclays has suspended as many as six foreign exchange traders and that RBS yesterday put two of its traders on suspension as part of the probe involving regulators in the UK and worldwide.

Both banks declined to comment on the suspensions, but have confirmed the have been drawn into the investigations.