The Chancellor’s Mansion House Speech on Wednesday night marked an important new policy towards UK banks.
He clearly supported policies to promote more banking competition within the UK market. He underlined the importance of more competitive banking capacity in the Uk domestic market to finance the recovery.
Challenger banks will be created and sold from both Lloyds/HBOS and RBS. TSB will be floated off by Lloyds soon as a newly quoted bank in the marketplace.
The biggest changes will be at RBS. They are asked to sell off US based Citizens Bank. I have never seen the point of UK taxpayers owning a wide ranging global banking group that still holds good business assets like Citizens, when they can be sold and the capital realeased to assist in the rebuilding of the rest of RBS. They will sell off a challenger business in the UK. They will slim their Investment bank more. This could include sales of talent and assets where it can be profitable in the future.
The Chancellor is also going to undertake a rapid review in the Treasury of whether to have a Bad bank/Good bank division. This might speed the sale of the good bank and permit the Good Bank to make a bigger contribution to financing the recovery. There are capital issues for the Bad bank, and the view of the minority shareholders to accommodate.
The Chancellor rightly said “While the bank (RBS) is healing, let’s be frank it has not healed as quickly as we all hoped”. I am pleased he is now taking action to split it up and speed its recovery and improve the contribution it can make to the UK economy. It was an unusually important Mansion House Speech.
I disagree with those who say the government should not intervene or influence strategy in this way. The government is the taxpayers’ representative, and is responsible for the overall economy. It is good to see them making decisions about RBS, as the future of this bank is central to our economic progress. The UK economy has done well in the last 3 years taking into account that it has been against the very strong headwind of its largest commercial bank shedding £900 billion from its balance sheet.