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RBS ringfences £38bn worth of bad assets


The Royal Bank of Scotland has today ended speculation of the bank being split into good banks and bad banks by placing £38bn worth of ‘bad assets’ into an internal ringfenced bank.

A review into the possibility of creating an external bad bank was concluded to have unjustified “effort, risk and expense.” The review which was conducted by Rothschild Investments said that such a plan would “do more harm than good.”

Furthermore, Ross McEwan, CEO of the Royal Bank of Scotland has warned that the bank which was bailed out by the Government following the banking crisis will make substantial losses this year, which has seen shares continue to fall to around 355p, well below the 500p per share that taxpayer paid in the bailout of the bank. The move itself has reportedly been seen as an attempt to restore relationships between the bank and the government/regulators, with McEwan frequently talking about “resetting” relationships between the Treasury and the Bank of England.

As a result of expected losses, McEwan is hoping to implement a revised strategy that would move away from the “weariness and defensiveness” of the current RBS strategy where over three in four loan applications from small and medium businesses are being turned down. McEwan said a reported which revealed such figures made for ‘uncomfortable reading’ but claimed the bank would be confronting the problems.

Additionally, Chancellor George Osborne was defiant in supporting the banks future stating that: "Today RBS sets out a new direction – a new direction that will lead it to being a boost to the British economy instead of a burden. This is part of our economic plan for sustaining the economic recovery and creating a banking system that works for Britain." However, Osborne did go on to say that any sell off of government owned shares is unlikely to happen until after the election.

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