Sir Mervyn calls for RBS split

City Editor

Thursday 7 March 2013

BANK of England Governor Sir Mervyn King has called for Royal Bank of Scotland to be split in two and returned to the private sector within a year.

NEW STRATEGY: Sir Mervyn King says RBS should return to the private sector within a year. Picture: Andy Rain

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TIM SHARP CITY EDITOR

Arguing that it is a "nonsense" that the bank could be run at arms-length from the Government, he called for the creation of a "new RBS" focused on lending to UK companies and households while the rump is run down.

But the approach is at odds with the strategy pursued by Stephen Hester, chief executive of the part-nationlised bank, and endorsed by Chancellor George Osborne when RBS unveiled its latest financial results last week.Sir Mervyn, who will step down in June, said: "The whole idea of a bank being 82% owned by the taxpayer, run at arms-length from the Government, is a nonsense. It cannot make any sense."I know it was put there for good reason. People didn't want politicians running banks. But I think it would be much better to accept that it should have been a temporary period of ownership only to restructure the bank and put it back."He told the Parliamentary Commission on Banking Standards that, while Mr Hester had struggled manfully with reform, there needed to be a more decisive approach to restructuring."RBS at present is a portfolio of different activities that do not sit well enough together to make the market bid for it," he said.Sir Mervyn declined to say whether the split should be a Northern Rock-style division into a good bank and bad bank or a separation of its investment bank and high streetoperations. He rejected full-scale nationalisation but warned that its con-strained lending had "macroeconomic consequences".Sir Mervyn said that the UK Government should recognise it will take a loss on its £45 billion investment on RBS. He added: "We should accept that and look at a way of creating a new RBS that will be a major lender to the UK economy rather than a lender that is constrained its lending because it has little choice under the current strategy."He said the US had been quicker to repair its banking sector and selling it back to the private sector should not take much more than a year.The Treasury declined to comment on Sir Mervyn's remarks as did RBS although insiders at the bank are understood to be frustrated with the perception that the bank is making little progress.Asked about talk of a split between Downing Street and Threadneedle Street, the Prime Minister's official spokesman said the Government's view is its current reform programme "is the right thing to be doing". The City also seemed to view Sir Mervyn's plans as unlikely with RBS's shares finishing the day down a relatively modest 3.7p, or 1.2%, at 309.1p. This values the bank at £18.8 billion.Sir Mervyn's intervention is the latest in a slew of ideas to emerge about what to do with RBS ranging from full nationalisation to distribution of its shares to taxpayers.There has also been a shift of the Government's stance concerning the level at which it would consider a sale to be break-even with the focus now on the price it stands in the National Accounts.With RBS, this would be 407p instead of the £5 that the Government bought its stake at.Sir Mervyn said that banks still being too big for the Government to allow them to fail is the "single biggest challenge" for regulators.He also complained that about the ease of access bank chiefs have to senior politicians which he said has not changed since the financial crisis. The European Union's plans for a cap on bonuses was criticised by Andrew Bailey, chief executive designate of the forthcoming Prudential Regulation Authority, who warned that it could lead to higher fixed pay.

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Sir Mervyn calls for RBS split

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