Royal Bank of Scotland faces review over bailout condition

Royal Bank of Scotland, Britain's largest taxpayer-owned bank, faces an EU review into whether a new plan to satisfy the conditions of its bailout is equivalent to selling its Williams and Glyn unit.

The alternative plan, which includes the bank helping to fund its competitors in small-business lending, contains “novel behavioural measures, the effect of which is difficult to quantify”, the European Commission said Tuesday in a statement.

The EU competition regulator said interested third parties have one month to submit comments.

RBS failed to sell Williams and Glyn, which was required as part of its 2009 bailout to increase competition in lending to small and medium-sized enterprises, amid issues in separating the unit’s technology platform.

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Instead the UK offered an alternative package in February that has an estimated upfront cost for RBS of about £750 million (€874m) and forces the bank to help its rivals poach clients.

Fair competition

“We can only accept this proposal if it has the same positive effect on competition as the divestment of Williams and Glyn would have had,” EU competition commissioner Margrethe Vestager said in the statement. “This is important for fair competition.”

The UK treasury said in a separate statement on Tuesday that it would perform a “market-testing exercise” for four weeks starting later this month. The test is aimed at ensuring the new plan does increase competition in business lending.

For RBS, reaching an agreement on Williams and Glyn is one of the final obstacles before the bank can resume dividend payments for the first time since its £45.5 billion (€53bn) bailout almost a decade ago.

The UK is heading into negotiations with the EU over the alternative plan just as prime minister Theresa May seeks to extract Britain from the EU after triggering article 50 last month.

Separate issue

While seeking an agreement on the plan for the bank may complicate Brexit, RBS chairman Howard Davies has said EU officials have so far treated the settlement as a separate issue. Failure to reach a deal could result in measures including the full repayment of state aid the bank received in the crisis.

“These proposals would provide a path to increased competition in the SME market place,” a spokeswoman for RBS said in a statement. A deal would satisfy EU demands “more quickly and with more certainty than undertaking a difficult and complex sale, and would provide much-needed certainty for customers and staff”. – Bloomberg