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RBS sell-off 'unlikely' before 2015
RBS has avoided a threatened carve-up and nationalisation of its problem loans, and will instead run down the assets at a faster rate
Chancellor George Osborne has admitted Royal Bank of Scotland is unlikely to be re-privatised before the 2015 general election as he opted for a faster run-down of the bank's toxic assets.
The 81% state-owned bank will create an internal "bad bank" of £38 billion of problem loans, but sidestepped a feared full external split after a Government-commissioned review said that would be too risky and expensive.
It came as RBS reported losses of £634 million in today's third-quarter results, hurt by one-off items and an additional charge of £250 million to cover mis-selling of payment protection insurance (PPI).
New chief executive Ross McEwan has also started a deep review of the lender which will report back in February, and is to speed up the sale of its Citizens US banking subsidiary, with a partial flotation next year.
Mr Osborne said he thought it was "unlikely" that RBS could be sold off and returned to the private sector before the next general election in May 2015.
"I think, sadly, it is still some way off," he told BBC Radio 4's Today programme.
"I think, quite frankly, it is unlikely before the general election.
"If there was a transformation in RBS and all these problems that it has to confront were dealt with much more quickly, maybe we would reconsider. But I say 'unlikely' in the real sense of the word, which is I don't think it's very likely."
Mr Osborne added: "I wouldn't feel comfortable going to the British people and saying 'Invest in RBS' until I was absolutely clear that it was on top of its problems."
He played down suggestions that taxpayers could be given shares in the bank when it was finally returned to the private sector.
"I prefer the approach we have taken with Lloyds, which is we sell the shares and then we make a profit for the taxpayer and we can use that to pay down our debts which collectively as a nation, sadly, we have too much of," he said.
"I haven't completely closed my mind to it but I have to say the most preferred option, I think, at the moment is the approach we have taken with Lloyds."
Mr McEwan said the plan will "create a bank that can reward the faith of UK taxpayers and all our investors".
He said: "We are hugely indebted to the public of the UK for putting their hands into their pockets and saving this great institution."
But RBS shares fell almost 4% on the prospect of significantly higher bad debt writedowns of up to £4.5 billion in the final three months of the year as future loan losses are brought forward.
The announcement also coincided with a scathing report by former deputy governor of the Bank of England, Sir Andrew Large, on the bank's lending to small and medium-sized firms.
It found a host of problems in the way RBS treats these customers - including long delays on approving loans.
Mr McEwan said the bank accepted the report and will address the issues in its review - which is also likely to feature heavy cost-cuts.
The internal bad bank aims to run down most of the toxic assets within three years, and will contain about £9 billion of assets from Ulster Bank, as well as problem commercial property loans.
RBS said it has already done the "vast bulk" of its balance sheet clean-up, slashing "non-core" assets from £258 billion five years ago.
It said the bad bank plan will boost its financial strength by releasing capital over time, as well as freeing up management.
The future of Ulster Bank, a major lender in Northern Ireland and the Republic of Ireland, will be decided in February's review. Mr McEwan refused to say whether its cost-cutting plans will entail heavy job losses.
The review found that an external bad bank would be unlikely to speed up a return of RBS to the private sector, compared with an internal bad bank.
The outcome of the long-awaited report into splitting the bank, which needed a £45 billion taxpayer bailout in 2008, was welcomed by the Bank of England.
It said: "These actions should create a more resilient institution that is better able to support the real economy without any expectation of further Government support."
It appeared to mark a change of tack from the central bank, after former Bank of England governor Sir Mervyn King backed a full split of the lender. Andrew Tyrie, chair of the Parliamentary Commission on Banking Standards, had also called for a break-up.
The Treasury also said taxpayer support for the lender has been reduced by another £8 billion after the so-called Contingent Capital Facility was removed a year early.
It is also in talks with the European Commission on speeding up a return to dividend payouts - by removing the prohibitive Dividend Access Share.
The bank has also reportedly suspended two traders in its foreign exchange arm as regulators clamp down on manipulation of currency markets.
Mr McEwan refused to comment on the case but said it will "come down very severely on anyone we discover has been breaking the rules".