RBS Selling Non-Core Assets - Analyst Blog

Pursuant to the European Commission (EC) approval of its restructuring plan, the Royal Bank of Scotland (RBS), is selling its non-core businesses in select markets to shore up its financial standing. 

As part of the restructuring plan, Royal Bank intends to sell its 51% stake in commodities trading firm RBS-Sempra, which it jointly owns with Sempra Energy (SRE). The deal is expected to fetch about £2.5 billion. Macquarie has been named along with JPMorgan Chase & Co. (JPM) and Deutsche Bank (DB) as bidders for the RBS Sempra Commodities business. 

Royal Bank of Scotland is also selling its retail and commercial units in the Asia-Pacific region, while remaining focused on the wholesale and investment banking sector. Its presence shrank from 15 countries to 11 In the Asia-Pacific regions. HSBC Holdings Plc (HBC) is the likely contender for the purchase. 

The bank is also planning to spin out its wealth management unit. Aberdeen Asset Management has shown interest to acquire the unit, which is expected to fetch £100 million. 

Royal Bank of Scotland, one of the largest victims of the global financial crisis, is at present 83% owned by British taxpayers. The bank's woes stem from a massive number of risky investments in areas such as commercial-property loans, leveraged finance, and derivatives. Its problems also arise from the bad assets it inherited with its 2007 acquisition of a part of the Dutch bank ABN Amro Holding NV. 

The government ownership of Royal Bank of Scotland isn't without its headache for management. The bank was told last month by EC that it must sell its insurance businesses Direct Line, Churchill and Green Flag. Most recently, the bank’s directors and executives clashed with the U.K. government over bonuses for senior employees. 

The authorities of EC are of the opinion that the commitment to exit all non-core and riskier business lines will contribute to strengthening the bank’s capital and liquidity position. The government is demanding the bank to scale back its operations as its multiple businesses have made the bank operationally complex. Royal Bank of Scotland is the largest bank that has direct government ownership and it is expected that the government will retain a stake in the bank for years to come.
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