Neelie Kroes sinks her teeth into RBS

November 3, 2009

Europe’s Competition Commissioner is not a toothless nodding dog after all. She may have allowed Lloyds Banking Group to get away with a friendly lick, but she has taken rather more than a bite-sized chunk out of the Royal Bank of Scotland to punish it for overdosing on state aid. Out must go Sempra Commodities, the RBS branches in England, its payment processing business, and the identical twins of insurance, Direct Line and Churchill, the one with the wretched nodding dog advertising logo.

The list shows what a series of unrelated assets old RBS had accumulated – and it doesn’t even have to ditch Citizens Bank in America, bought when the previous management was trying to buy its way to the top of the world.

RBS has instead become the citizens’ bank of the UK, with the state’s “economic interest” set to rise to 84.4 percent – or even further if there are still more horrors ahead. The sheer size of this shareholding takes some of the sting out of the latest moves to restore stability, since this quasi-nationalisation removes most of the conflict of interest between the bank and the state.

Nevertheless, the bill is eye-watering. The full 25.5 billion pounds of public money committed in February is needed, which shows once again the disaster area that was RBS’s commercial lending business. The 282 billion pounds of assets left in the toxic pool which had threatened to bust the bank must now be worth less than 222 billion pounds for the state to bear any losses, an outcome that RBS expects only in “stress scenarios.”

Just to make sure that the bank doesn’t need rescuing a third time, the UK taxpayer is committed to buying a further 16 billion B shares at 50 pence each if RBS’s core capital falls below 5 percent.

Yet it could have been so much worse. The disposals are peripheral, the four-year timescale means that someone will eventually pay a decent price for them (even for the Churchill dog), while the 51 percent stake in Sempra was a potential embarrassment in the bonus debate, given the scale of the rewards in commodity trading.

RBS is going to be a government pensioner for a lot longer than four years, but it may not be all bad news. After all, the UK’s long-suffering taxpayers did rather well, eventually, from the government’s holding in the Anglo-Persian Oil Company. It became BP.

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