RBS to create internal bad bank as it reports third quarter loss

1st Nov 2013 07:07

Royal Bank of Scotland (RBS) has revealed it will not split into a so-called 'good and bad bank' as it reported a third quarter loss.The 81% state-owned bank will create an internal 'bad bank' where it will shelve off £38bn of its toxic assets.BlackRock and Rothschild were commissioned to evaluate the case for a separation that would have seen RBS's riskiest assets taken out of the bank and put into state ownership.Instead it has been decided to create an internally managed bad bank rather than a more full-blown break-up.It runs against the advice of the Parliamentary Commission on Banking Standards which had recommended that toxic loans should be removed from RBS and kept in the public sector.RBS said the internal bad bank would free up between £10bn and £11bn of capital, making it easier for it to lend. At the same time, the group announced that non-core operating losses widened to £845m from £586m a year earlier due to exit and restructuring costs as the bank prepares to return to privatisation. Core operating profit fell 14% to £1.28bn, due to contracted of the Markets business which saw income down 9%."We see signs that the UK economic recovery is gaining traction and have observed higher levels of activity and confidence among our customers," the bank said in a statement. "Nevertheless, we expect a continued muted performance from our core businesses in the short term, due primarily to the continued effects of low interest rates, excess liquidity, a smaller balance sheet, and lower securities gains from our liquidity portfolio." RD