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Shares in Royal Bank of Scotland tumbled by as much as 17% today after it admitted its break-up ordered by European regulators will be more painful than feared.
The part-nationalised bank said discussions with the European Commission are “in their final stages” and will “include some divestments not initially contemplated”.
RBS shares sank 17% before settling down nearly 6%, or 2.43p, to 39.4p.
It came as Chancellor Alistair Darling put the finishing touches to plans to create three High Street banks in the UK through the break-up of RBS, Lloyds Banking Group and Northern Rock.
A source close to RBS said the bank felt “bruised” by the demands from Brussels which look set to include the sale of its insurance businesses Churchill and Direct Line, something chief executive Stephen Hester ruled out earlier this year.
It will also be forced to sell 312 former Williams & Glyn's branches in England and Wales and its NatWest branches in Scotland as punishment for taking state aid.
RBS said: “It remains RBS's goal that any required divestments do not threaten its recovery plan, which is already under way.”
RBS also confirmed it is close to an agreement with the Treasury over its involvement in the Asset Protection Scheme set up by the Government to insure toxic bank debts.
It is expected to pump around £280 billion into the scheme, less than the £325 billion initially agreed, with the taxpayer increasing its stake in the bank from 70% to 84%.
Rival Lloyds, 43% owned by the taxpayer, looks set to avoid the scheme through a £25 billion fundraising.
However, it will be forced by Brussels to sell, a number of its businesses such as Lloyds TSB Scotland, Cheltenham & Gloucester and Intelligent Finance.
The Chancellor could announce his banking plans as early as tomorrow with foreign investors set to play a major part in the shake-up. Regulators in Europe have ordered the break-up of Northern Rock, RBS and Lloyds after the banks were propped up by billions of pounds of state aid.
The Government sees the European ruling as an opportunity to create three new banks focused on deposit taking and lending to increase competition in the market.
Darling has ruled out selling parts of Northern Rock, RBS and Lloyds to established rivals such as HSBC and Barclays and instead wants new entrants to the UK market who would “have a clean sheet to come in and do things differently”.
Sir Richard Branson's Virgin Money and a host of foreign investors are among those who are thought to be interested in taking part in the auction.
Reader views (8)
Stop being silly, Darling. It is our money your wasting, not yours.
- James Elliott, Eastbourne UK
Its ok for you lot, but these politicians dream in £Bn's and face being unemployed next year, so lay off.
- Bill, Hay~Heath UK
One can only imagine how much this break up exercise will cost, the lawyers and consultants must be rubbing their hands will glee, so its a double whammy to the poor taxpayer, and one asks what is to become of the toxic pile of bad loans, "structured" products etc left by the wayside? My guess is that these will be held off of balance sheet by the government and drip fed into the Treasury, again the Taxpayer pays and not the Bank - disgusting.
- Wallytrader, London
Lloyds certainly needs to divest itself of excess market share and can survive this process, but I do have to question in what way Neelie Kroes, the European Competition Commissioner, feels it is helpful to rob RBS of the precious assets that offer the best chance of a way out of its self-inflicted mess? Her action will prolong the bank's recovery, threaten further job losses and cost the British taxpayer even more money in the long run. By all means break up these state-supported banks after they have recovered, but please, not before. Or is there no such thing as joined-up thinking in Brussels?
- Stepehn Radford, London, England
3 "cleans better" new banks which will have to set up NEW branch networks - NEW admin and computer centres - NEW staff (including 3 sets of Execs with bonuses?) buying what? A customer base which will decide to stay with the original bank?
Result 3 more banks on every high street - less consumer choice in the shops. 3 new sets of administrations which will take years and trillions to set up. More costs = less corporation tax!
All because of the EU. Time to let Scotland go independent and take THEIR banks with them. We should vote UKIP and get the european burocrats noses out of OUR business!
We would do better with primary schoolboys playing "I`m a Chancellor"
- Roy, Billericay Essex
I do hope that this is just more New Labour spin.
Who is so stupid to sell an asset that the cost the tax payer billions, in a recession, not even Mr Darling is this silly.
However, it does seem to fit in well with the New Labour 'scorched earth' policy, this being not to leave two bricks standing on one another, after the election.
There is good news, Mr Brown and his chums won't be with us for much longer.
- J R J, Glen Vine
So further taxpayer's funds are likely to be invested into RBS. This, as a taxpayer,I feel especially angry about in supporting RBS, the very bank that made countless errors with my accounts, ruined me and my business financially some 15 years ago, said "sorry" about their mistakes but never ever compensated for my losses as a result. Now I have to help them! Rough justice indeed.
- Bernard Lockett, Folkestone, Kent.
Shouldn't the peoples of Europe form a committee to order the break up of the European Union for being a financially corrupt undemocratic morally bankrupt organisation, or is it too big to fail ?
- Doug Watt, london e14
