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July 1, 2013 9:19 pm
The government has moved quickly to appoint advisers on the potential split of Royal Bank of Scotland into a good bank and bad bank, with Rothschild set to be named to run the assessment.
Rothschild’s role could be announced as soon as this week, said people close to the situation, after the investment bank saw off competition from Deutsche Bank and Bank of America Merrill Lynch at presentations last week.
The accelerated mandate comes less than a fortnight after chancellor George Osborne promised in his Mansion House speech he would launch an “urgent investigation” into the idea that up to £130bn of RBS’s worst loans should be hived off into a separate unit.
The bad bank idea – raised in the final report of the Parliamentary Commission on Banking Standards, published shortly before Mr Osborne’s speech – had been endorsed by prominent figures including commission member and former chancellor Lord Lawson, and Sir Mervyn King, who stepped down as Bank of England governor last week.
Rothschild is expected to begin the study immediately with the aim of completing it by September, removing the uncertainty over RBS’s future structure as soon as possible.
The prospect of a good bank and bad bank split has caused tumult among investors. Mr Osborne’s statement that the idea should be properly investigated was a key reason for an 18 per cent fall in RBS’s share price in the past month, and a slump in the value of the bank’s subordinated debt, bank analysts said.
“Everyone’s terrified they’re going to get bailed in,” said one, referring to the belief among bond investors that RBS’s debt could be restructured, with existing bondholders taking a “haircut” to help fund the capital needs of a bad bank.
The Prudential Regulation Authority, the part of the Bank of England that is responsible for supervising the banking sector, recently oversaw a drastic capital plan by the Co-operative Bank which envisages raising close to £500m by “bailing in” bondholders, exchanging existing bonds for new equity and debt.
The selection of Rothschild to run the RBS probe will raise eyebrows in some quarters, given that the key Treasury official responsible for the government’s bank investments was a Rothschild executive until a year ago.
John Kingman, who is understood to have recused himself from the decision awarding the mandate, was Rothschild’s head of financial institutions before returning to the Treasury as the department’s second most senior official last autumn.
RBS has been in limbo since the ousting of Stephen Hester as chief executive three weeks ago. The bank’s board is now looking for a replacement.
In addition to the Rothschild appointment, the Treasury is expected to select an asset valuation specialist to examine RBS’s loan book. Either Pimco or BlackRock is likely to take up the role, according to bankers, given their recent experience in assessing problem loans in troubled eurozone countries.
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