DealZone

Kroes keeps up pressure

July 2, 2009

Neelie Kroes’ campaign to ensure the European Commission’s rules over state aid are respected has remained in a high gear over the last few weeks. Three times the Competition Commissioner has spoken publicly about how restructuring plans for shaky banks bailed out last Autumn should be agreed with the governments of those countries.

This Tuesday she told the British Banker’s Association the truth. Royal Bank of Scotland made the largest ever corporate loss last year and yet was still saved by the government with a massive £20 billion plus rescue injection. One might ask how such an institution, so fundamentally important for the economy, could not be?

Kroes does not dispute that. What she does insist on is that such aid cannot be effectively propping up the bank indefinitely, allowing the balance sheet, and hence the bank’s business, to remain bigger than it should be, if it were not for that aid.

EC rules state that a restructuring plan to set out how this should be rectified must be made within six months of the aid being administered. After a while there is a danger that smaller banks, without aid, will be disadvantaged by their larger protected brethren.

Kroes is clearly losing her patience with the UK Government. The two camps have yet to resolve how Northern Rock will be restored to independence over 15 months after a draft restructuring plan for the UK’s fifth largest mortgage lender was submitted.

It seems as if a similar delay could happen with RBS. However, that could be disastrous for Kroes as the UK government turns its attention to the forthcoming election. RBS is such a significant bank that there is a danger Kroes’ authority will be damaged irreparably if no agreement can be reached on possible divestments.

With Germany she acted decisively agreeing a dramatic restructuring of Commerzbank and WestLB within the EC timetable.

So the next month, before RBS updates on its internal restructuring plans with interim results in early August, will be critical. An announcement on the sale of various RBS Asian businesses, possibly to Standard Chartered and ANZ, is expected imminently.

However, that is unlikely to be sufficient to satisfy Kroes, who wants to see RBS’s dominant domestic position in UK corporate and smaller business banking broken up. Perhaps we will yet see NatWest and the Royal Bank separated. Bringing those brands together was disgraced former chief executive Sir Fred Goodwin’s key deal.

After that Kroes will aim her sights at Ireland and her homeland of the Netherlands. Both states are propping up key lenders there. Kroes is due to visit Ireland for two days on July 16.

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