Proposals for a radical shake-up of the State aid deal that props up the Royal Bank of Scotland (RBS) could transform the institution into a funding hub for new business banks, it has emerged.
According to Treasury plans unveiled on 17 February, the beleaguered bank will no longer need to fulfil the last of five divestments it was required to make under EU competition law, as a proviso of the bailout it received during the financial crisis.
Instead, it would be custodian of an independently administered fund that eligible challenger banks could use to enhance their business-banking capabilities.
A second fund at the bank would offer challengers a series of ‘dowries’ that would help them entice SMEs towards their services, while a third financial package would reshape RBS into a de-facto fintech accelerator.
Funds in that final stream would be dedicated to backing new technologies designed to “support the business banking of the future”.
The Treasury expects that the total, upfront cost of the proposed package will be “in the region of £750m”.
In line with the original terms of RBS’s 2008 rescue, the UK’s other large incumbent banks – namely HSBC, Lloyds and Barclays – will not benefit from these measures.
Treasury officials’ sweeping rethink of the bank’s structure and purpose is the endgame of significant wrangling over the long-sought sell-off of the bank’s Williams & Glyn arm: a division consisting of more than 300 RBS and NatWest branches distributed through England, Scotland and Wales.
Bosses were required to hive off the branches with the specific aim of divesting them as part of the conditions of RBS’s £45bn bailout, which gave the UK government an 81% shareholding.
As Brussels lawyers had interpreted that emergency funding as State aid – and therefore uncompetitive – the European Commission had called for RBS to carve itself up and put key pieces on sale.
While most of them have found a home, efforts to pin down a buyer for the Williams & Glyn unit have dragged on for years. In November, Santander returned to the negotiating table after shelving a bid it had proposed in the spring. But its second attempt also ran aground.
A Treasury spokesman said: “RBS must deliver on its remaining State aid commitments, and this new plan represents the most effective way of delivering the pro-competition objectives behind them.
“This new plan provides a clear blueprint to increase competition in the UK’s business banking market, and would help RBS resolve one of its most significant legacy issues, which has held back the sale of the taxpayers’ stake.”
The Treasury added in its statement that it has been in “constructive contact” with the Commission over RBS in recent months, and will now seek a formal amendment to the bank’s commitments that reflects the new proposals.
EU competition commissioner Margrethe Vestager will now work with the College of Commissioners on an evidence-gathering process that will explore the logistical feasibility of the new plan. In parallel, the Treasury will carry out a market-testing exercise to determine stakeholders’ appetite for the changes.