Fitch: RBS Would Benefit From ING-Style EC Amendments

The increased flexibility given to Dutch group ING to complete its divestments would benefit other banks with European Commission (EC)-mandated deadlines approaching, such as RBS, according to Fitch Ratings. The credit ratings agency (CRA) said that Commission may be more open to agreeing changes in light of the difficult operating conditions.

Fitch believes the likelihood of an amendment to RBS’ EC-mandated UK branches sale has increased after the collapse of the deal with Santander UK in October. The business for sale is substantially carved out, with a standalone management team. But execution risk is higher, as there is limited time to complete the transaction with a buyer who can meet the UK Financial Services Authority’s (FSA) demanding regulatory hurdles by the end-2013 deadline. The CRA believes most potential bidders do not currently have the capital, resources or management ability to deal with such a large acquisition. The timeframe is also tight for a flotation or management buyout.

RBS would benefit from changes to its EC-mandated UK branches sale, such as a deadline extension or a resizing of the assets for sale, similar to ING’s amendments for the Westland Utrecht Bank (WU) divestment. Only part of WU will be sold, and it will be divested as part of the European insurance business, for which an extended timeframe has been agreed. Divestments could also be changed into required run-downs, as was the case for Eurohypo, the commercial real estate subsidiary that Commerzbank was required to sell in its original restructuring plan – although this is a very unlikely option for RBS.

Any amendments to restructuring plans for other banking groups are likely to be less accommodating than ING’s, where legal proceedings (extinguished by the amended plans) were underway between the group and the EC. Fitch said that it would not rule out additional Commission measures to compensate for any amendments to other banks’ restructuring plans.

A slower restructuring could also keep other state aid restrictions in place for longer, such as bans on acquisition and price leadership, limits on new business and additional requirements for calls or buybacks on subordinated securities. But an extension avoids the need for forced sales while markets are weak. The longer the delay – as for ING, where the deadline for fully divesting its insurance operations was revised to 2018 from 2013 – the greater the chance of a financial sector recovery and stronger market conditions.

On 19 November ING announced that it had agreed an amended restructuring plan with the EC. This included an extension to the deadline for fully divesting its insurance operations, which now include some retail banking activities of WU. The plan also included a schedule for repayment to 2015 of the remaining €3bn state-aid capital securities and a 50% premium.


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