Royal Bank of Scotland is poised to announce that it has persuaded Rory Cullinan, the head of its now defunct “non-core” division, to head its much-hyped internal “bad bank”, RBS Capital Resolution.
Many colleagues had expected Mr Cullinan, a close friend of former chief executive Stephen Hester, to leave the bank at the end of the year, leaving a question mark over who would run the bad bank.
A government review, unveiled last week, concluded there should not be a fully-fledged split of RBS into a good and bad bank, as urged by luminaries such as Sir Mervyn King, former Bank of England governor and Lord Lawson, the former chancellor. Instead RBS, which remains 81 per cent state-owned, is creating a new divisional bad bank within the group
Mr Cullinan’s five-year wind-down of the non-core division – from a peak of housing £258bn of assets to about £40bn now – is virtually complete, making it a natural time for him to exit. The Scottish private equity specialist had also applied for the RBS chief executive job but lost out to retail banking boss Ross McEwan.
But according to people close to the process, RBS’s chairman Sir Philip Hampton has persuaded Mr Cullinan to stay on in the revamped role.
An announcement on the appointment and on the finer details of the mission for RBS Capital Resolution is expected in the coming days.
About half of the bad bank will comprise assets from the non-core division, although the remainder will be drawn from other parts of the RBS group, particularly Irish subsidiary Ulster Bank and the UK commercial real estate book.
So far, investors remain sceptical about the set-up. RBS’s share price closed at 324.95p on Thursday, well below its level before the bad bank announcement.
Although little detail is yet known of how the bad assets will be wound down, RBS has already suggested a possible £4.5bn hit in fourth-quarter results as it prepares to accelerate asset sales at lower prices than they are valued on the balance sheet.
“It makes no sense,” said one analyst. “Just when asset values on commercial real estate are improving, they’re going to sell and miss out on the upside.”
RBS’s riposte is that the capital relief generated by getting such toxic assets off the balance sheet is a valuable offset to the hit to profits.
Mr McEwan said last week that his goal was to sell up to 70 per cent of the assets over the next two years, with the balance to be divested in the third year.
Sentiment around RBS was further dented on Thursday, as the US Securities and Exchange Commission fined the bank more than $150m over the mis-selling of residential mortgage-backed securities dating back to 2007.
At the same time, the UK’s Financial Conduct Authority published details of banks’ relative exposure to the cost of redressing clients who were mis-sold interest rate hedging product. Analysts at Invesco published a sell note on RBS stock, pointing to the sixfold disparity between the provision-to-claims ratio at Barclays and at RBS. Barclays has set aside an average £445,000 per claim compared with RBS’s £77,000.
RBS declined to comment.