RBS to Sell More Assets, Insurance Subsidiaries Under EU Pressure

By Robert Barr | November 3, 2009

State-controlled Royal Bank of Scotland Group PLC said Monday that European Union regulators will require it to sell more assets than originally expected, part of an industry shakeup announced by the government this weekend.

Treasury chief Alistair Darling on Sunday said all three banks rescued by taxpayer money – Lloyds Banking Group, Northern Rock Plc and RBS – would divest units.

On Monday, RBS said negotiations between the British Treasury and the European Commission, the executive arm of the EU, over the bank’s bailout terms were “in their final stages, and will include some divestments not initially contemplated.”

RBS shares fell 7.1 percent to 38.92 pence [$0.6492] on the London Stock Exchange. RBS shares have not closed below 40 pence since July 22.

The bank gave no details about what parts of its business it might be forced to sell. It was already expected to sell branches in England under the revived Williams & Glyn’s name.

“It remains RBS’s goal that any required divestments do not threaten its recovery plan which is already under way,” the company said.

RBS said it was also close to agreement with the Treasury about terms for insuring £325 billion ($530 billion) of troubled assets, a step which will increase the government’s stake in the bank from the current 70 percent to more than 80 percent.

Media reports say RBS may have to sell its Churchill and Direct Line insurance operations, a large part of its investment bank, and its U.S. banking arm, Citizens Financial Group. The Providence, Rhode Island-based business employs about 24,000 people.

Reports also suggest that Lloyds Banking Group could shed its mortgage arm, Cheltenham & Gloucester, and Intelligent Finance, an Internet bank.

“What you really want to do is have quite a substantial divestment – perhaps branches or perhaps particular institutions that they own – made available to other people,” Darling told the BBC’s “The Politics Show.”

“Unless we get competition we are going to end up with half a dozen big providers, which would be a big reduction in choice and that would not be acceptable,” he said.

The government announced last week that Northern Rock would be split into a profitable mortgage lender and a second unit holding shakier assets.

“We will be able to split Northern Rock by the end of the year but I’m not going to rush into a sale. We will only sell when the time is right and when the price is right,” Darling said.

The Financial Times said Lloyds Banking Group would announce more details on Tuesday of its plans to raise up to £25 billion [$40.77 billion] and stay out of the government’s Asset Protection Scheme for insuring losses on toxic assets. That would prevent the government from becoming the majority shareholders in the group.

The Financial Times said Lloyds would announced a rights issue to raise £13.5 billion [$22 billion] and a separate issue of £7.5 billion [$12.225 billion]in “contingent convertibles,” or bonds which would count as tier one capital.

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