LONDON - Royal Bank of Scotland, whose principal owner is the British government after a bailout five years ago, said Friday it would put its bad loans into a separate entity as part of a plan to speed up its revamp and return money to taxpayers.
The plan, which includes the creation of a so-called bad bank within R.B.S., came after the government had asked for a review into whether R.B.S. should be split up. R.B.S. also said it would focus on retail and commercial banking in its British home market, raising questions about the future of its operations in the United States and other foreign markets.
“We are a bank with a significant international reach but the U.K. is our home,†Ross McEwan, who took over at the bank’s chief executive at the beginning of October. The bank is separating about 38 billion pounds, or $61 billion, of toxic assets, including some property loans in Ireland.
Shares of R.B.S. continue to trade well below the threshold when the government would be able to start selling its 81 percent stake at a profit. The sale of an initial 6 percent stake in Lloyds Banking Group, an R.B.S. rival that also had to be bailed out by the government in 2008, added pressure on R.B.S.’s new chief executive to speed up the turnaround plan.
Britain’s Chancellor of the Exchequer, George Osborne, is expected to start selling the stake in R.B.S. before the next general election scheduled for 2015 even if it would be at a loss to taxpayers. Although the separation of the toxic loans could help R.B.S. recover faster, it will probably result in a “significant increase†in impairment charges at the end of the year and a full-year loss, the bank said.
In a statement, Mr. Osborne welcomed the step, saying it allows R.B.S. to “deal decisively with the problems of the past by separating out the good from the bad, and putting the bad loans in a bad bank.†He also said that “the bad bank should be an internal one, funded by R.B.S., rather than an external one funded by the taxpayer.â€
The “actions should create a more resilient institution that is better able to support the real economy without any expectation of further Government support,†the Bank of England said in a statement.
R.B.S. also said Friday that its net loss for the three months until the end of September was £828 million compared to a loss of £1.4 million in the same period a year earlier. The results fell short of some analyst expectations, which predicted the bank would return to profit in the period. Impairment losses in the quarter were left almost unchanged to £1.17 billion.
Mr. McEwan pledged to win back customer trust, restore pride in the organization among employees and work to repay the government for the bailout. Mr. McEwan, the former head of R.B.S.’s retail banking business in Britain, who joined R.B.S. just a little over a year ago, is expected to focus on retail and commercial banking at home, putting into question the future for the bank’s investment banking operation and units abroad.
Since the financial crisis began, the Royal Bank of Scotland has jettisoned around £900 billion, or $1.4 trillion, worth of assets from its balance sheet, and eliminated about 40,000 jobs in a bid to bolster profitability. The bank improved its capital cushion, scaled back its investment banking operation and sold a stake in Citizens Financial Group of the United States.
But bad loans from its banking unit in Ireland continue to weigh on performance, and a slow economic recovery made any sale of distressed real estate assets difficult. R.B.S. also had to set aside more than £2 billion to compensate clients it sold some insurance to that they could not use or did not need.
