Are we ready to sell our stake in RBS?

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Posted in:Banking and Finance|November 9, 2015 | Join the mailing list

A very interesting debate took place last Thursday in Parliament, centred on the much-maligned bank RBS and the wider discussion on the future of UK banking. The specific motion put forward was as follows:

 That this House calls on the Government to consider suspending the further sale of its shares in the Royal Bank of
Scotland whilst it looks at alternative options; and believes that this should take place in the context of a wider review of the UK’s financial sector and that such a review should consider the case for establishing new models of banking, including regional
banks.

Whilst some MPs were quick to extol the virtues of how RBS had ‘changed’ in the last few years, such as
Jeremy Quin MP who
said it was “appropriate that we at least acknowledge the huge transformation that has happened inside RBS over the past few years. With the encouragement of United Kingdom Financial Investments Ltd and my right hon. Friend the Chancellor, it has taken
serious actions. It has dramatically shrunk its investment bank, and that will be welcomed in many parts of this House. It has sold off its overseas assets, getting rid of Citizens Financial Group in the US, and it is sorting out the mismanagement of the past.
It is investing in IT systems finally to bring together the amalgamation of all the banks that form the business. With its capital now at 16%, I very much hope that it is now in the position that we all want to see whereby it can really drive lending into
the UK economy and support our small and medium-sized enterprises.”

Others, unsurprisingly, held very different views and queried whether anything had fundamentally changed within the bank’s culture. Furthermore, Clive Lewis MP referred to a recent
article in the Times highlighting the falsifying of documents by the bank within the IRHP Review process,

a story covered by berg
.

One of the key questions of the debate was whether, if RBS was sold, is there certainty that the taxpayer will recoup what was put in to save the bank back in 2009?

Guto Bebb MP was of the view that the time was not right for RBS to be placed back into private ownership. “RBS still has a huge credibility gap with the general
public and, more importantly, with the small business community. That gap needs to be addressed before we can entrust RBS to act in a manner similar to the way it acted in the past. I would be delighted to stand here today and say that the culture in RBS had
changed completely. I am utterly convinced that within RBS there are individuals who are making huge strides to change its culture, but am I convinced that all the bad eggs have been removed? Am I convinced that all possibility of actions that are detrimental
to small businesses within RBS has been removed? Unfortunately, the answer is no.”

Mr Bebb also raised the issue of the lack of

Treasury response to the TSC Report on SME Lending
(published in March 2015) Mr Bebb correctly queried why parliament was discussing the return of RBS to private ownership when such an important response as that of the Treasury to the TSC Report remains
outstanding.  

Furthermore, the FCA has instigated a report into the Tomlinson Report. Mr Bebb rightly pointed out serious concerns with returning RBS to private ownership prior
to the release of the FCA’s findings. When questioned on this point, The Treasury responded to say it would be published ‘between now and the end of the year’.

On the question of IRHPs, Mr Bebb has as follows:

“…the review into the banks that were affected, and particularly RBS, still leaves grounds for concern. Well over 50% of the derivative sales included in the FCA
redress scheme were sold by RBS, so there is a huge potential liability if the review is shown to be inadequate. The FCA, in its response to the Treasury Select Committee’s report, clearly stated that it was minded to undertake a review of its own redress
scheme, once all legal action had been completed. I am slightly concerned by that. If there are concerns about the implementation of its own redress scheme, I am surprised it is not willing to look at that until all legal action relating to the interest rate
swap scandal has been completed. That means that the regulator is almost abdicating its responsibility to the courts. The whole point of the redress scheme was to avoid the need for small businesses without the financial resources to have to resort to the
courts. They simply do not have the money. I am concerned, therefore, that the FCA seems to be admitting the need to review its own scheme but is not willing to do so until all court cases have been completed.”

 

Berg is of a similar view.
 

The debate was concluded by Harriet Baldwin (Economic Secretary to the Treasury) to state that “the government cannot support the proposals in the motion. They
run contrary to all the evidence presented to us.”

 

Notwithstanding the excellent points put forward in the debate therefore, it appears the gvernment will continue with its course of action to return RBS to private
ownership, despite several serious areas of concern remaining outstanding. 

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