RBS: the good, the bad and the ugly

It’s five years on from the height of the financial crisis, when RBS was on the brink of bankruptcy and had to be bailed out with £45bn of taxpayers’ money.

Today, we’re told, is the most significant moment in that timeline. A decision has finally been made to keep the bank intact and put the remainder of its toxic assets – £38bn worth – into a new “bad” bank that will exist soley to deal with the “old” bad debt and find someone – anyone – who’ll take it off their hands.

RBS has agreed to do that in three years – at record speed, we’re told – at a cost to us, the taxpayer, of at least £4.5bn. That is, another £4.5bn.

But instead of moaning and groaning like we usually do when we’re delivered more bad news about the bank we love to hate, we’re told this is good news and we should in fact be celebrating. That’s because things could be worse, apparently.

The Treasury could have decided to split the bank in two, which would have cost us even more money and taken even longer, prolonging the day when we eventually can start to sell our shares and recoup our “investment”.

John Kingman, the second permanent secretary to the Treasury, proudly tells us this is the first time all three parties – RBS, the Treasury and the Bank of England –  have reached a settlement that all have agreed on (all that tells me is how bitter and difficult things were in the past!).

It’s a settlement the senior civil servant believes will signal to the market that finally some decisive action is being taken to deal conclusively with RBS’s toxic assets, rather than talking about them and wondering what to do with them.

The market loves certainty, and furthermore, it will free the bank up to  carry on doing what it should be doing best: the business of lending to the economy.

I’ll note here that the shares fell 6 per cent today in response, and the new boss Ross McEwan told me there was no guarantee he could actually offload the assets in the set timeframe.

Technically, though, Mr Kingman’s theory is correct. Getting rid of all the bad stuff will allow RBS to focus on doing some good.

Absent lends
But what we also learned today is that RBS isn’t doing a good job of the normal business of lending either. This despite the fact that on numerous occasions the old boss, Stephen Hester, told us RBS was busy lending away and increasing its market share.

Sir Andrew Large today concluded the opposite was true. RBS isn’t even meeting its own lending goals and volumes of lending are actually falling, despite the bank’s claims.

Worse still, Sir Andrew, the former deputy governor of the Bank of England, accuses RBS of treating its customers in an “impersonal and unresponsive” manner, particularly those customers deeemed to be in distress.

This programme has featured numerous case studies of customers describing horrendous treatment at the hands of RBS. Not just a lack of lending, but in some instances a deliberate attempt, they allege, to shut their businesses down simply because RBS has decided their loans are no longer “core”.

In some instances, healthy businesses are forced into bankruptcy and placed into RBS’s global restructuring division, or GRG, where their assets are then sold off at below market values. It’s a travesty but one that has been well-documented.

So why has it taken an independent report by Sir Andrew to finally get these small businesses heard? The government, and Vince Cable in particular – who claims to be the champion of small business – should have acted sooner.

RBS, predictably, is launching a review into Sir Andrew’s findings. All of which will presumably prolong the time it takes to make the changes necessary and turn things round. Besides which, with more toxic debts to get rid of, how exactly will they be able to speed up lending in the short term?

More scandal

Which leads me on to the final imponderable. The issue of mounting scandals. First there was Libor and now RBS has admitted its co-operating with an investigation into potential rigging on the foreign exchange market.

It’s suspended two traders and a source inside RBS today told me the forex problem could end up being every bit as bad as Libor.

RBS has also been named on a lawsuit by the American mortgage giant Fannie Mae, which claims the bank’s attempts to rig Libor resulted in billions of pounds worth of losses to its business. And then there’s the ongoing costs of compensating PPI and interest rate swaps victims – neither of which are close to being concluded.

I asked RBS’s chairman, Sir Philip Hampton, how much he reckoned all these legal issues could cost. He simply shrugged his shoulders and said he wished he knew.

Throw all that into the mix and what you have is a Treasury and a bank desperate to project the image that the past is firmly behind them, that decisive action is being taken – albeit five years later – and that the bank is being honest with itself about the way it conducts its business and treats its customers.

While George Osborne and Mr McEwan may think those are all good reasons for us to cheer, the reality is that the taxpayer was hit with yet more bad news today (not least the third quarter losses, which paled into insignificance amid everything else) and the prospect of us ever exiting this bank and getting our money back looks as far away now as it has ever done before.

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