RBS’s computer glitch just got more serious

The “computer glitch” just got even more serious for RBS management.

Sir Mervyn King, the governor of the Bank of England, today used the continuing IT meltdown at RBS and NatWest to criticise the structure of the bailed-out banking group. He had stern words for RBS’s management, saying that the FSA should carry out a “full investigation” of the week-long computer problems.

“We’ve kept in very close touch with the very senior RBS management over the weekend,” Sir Mervyn told the Treasury select committee. “It’s still going to take time to catch up. What’s important now is that we provide any support needed.”

But the governor went even further than that. He drew a link between these problems and the banking group’s sprawling structure, even after its bailout. Specifically he suggested that, unlike a supermarket group management, RBS has not solely focused on the needs of its ordinary customers. This was a clear criticism of the focus of RBS on investment banking.

“One of the big lessons from this is that it shows everyone how important the basic functions of the banking system are,” the governor said. “Once the current difficulties have been sorted,” the FSA should “go in and carry out a detailed investigation of what went wrong and why it took so long” to put right,” he said.

This critique matters because there are voices in government who are moving against RBS, and UKFI, the independent “arms length” agency responsible for maximising the value of the government stake.

At 229p, RBS’s share price is still well below the taxpayer breakeven price of 500p. This year’s results showed that Stephen Hester‘s attempts to trade the bank back to profitability using investment banking profits is failing, and especially so during the eurozone crisis.

So there comes a point where it will be better for the UK economy to write off the losses on the taxpayer equity investment, scrap UKFI, and instead use RBS or some part of it actively to boost the economy. As the British recession continues (and is likely to continue another quarter), these calls are only getting stronger.

At this very moment, RBS/NatWest show considerable negligence/incompetence towards the very function that was the rationale for taxpayers having to step in: the payments system, ATMs, and salary payments. The governor of the Bank of England’s comments today show some sympathy for that view.

And it’s not just that either. In some banking circles, they are beginning to openly deride the idea of RBS going back to the private sector at all. They point out the huge cash calls required by RBS’s credit downgrades (£9bn, RBS said last week), and feel that the Mansion House liquidity initiatives had one principle aim: RBS. Its stock price spike after Mansion House certainly seemed to reflect that.

Important industry insiders feel we might be far closer to a 100 per cent state-owned RBS than a re-privatised one. The Treasury say no. The UKFI strategy of trying to maximise RBS’s share price remains for now. Britain’s weak economic recovery, the impact of that on the balance sheets of the big banks, and now RBS’ incompetence is pushing us towards a “plan B”.

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