* RBS strategy update 'crucial' for investment case
* Capital, future strategy must be tackled before sale
* UKFI accelerated departure of ex-RBS boss Hester
* Restructuring may accelerate sale process-New UKFI head
By Matt Scuffham
LONDON, Nov 12 Part-nationalised Royal Bank of
Scotland must address issues over its capital and future
strategy before the government can start selling its shares, the
new head of the agency managing Britain's bank stakes told
James Leigh-Pemberton, who will become executive chairman of
UK Financial Investments (UKFI) in January, said the outcome of
new RBS Chief Executive Ross McEwan's strategic review, due in
February, would be critical in determining whether the bank is
attractive to investors.
"There are certain issues in relation to RBS which
absolutely have to be tackled as a precursor to successful
reprivatisation: sufficient capital; strategic focus on
businesses where they enjoy competitive advantage and higher
returns and the normalisation of the capital structure,"
Leigh-Pemberton told parliament's Treasury Select Committee.
Britain is keen to offload its stakes in RBS and
state-backed Lloyds Banking Group, having pumped a
combined 66 billion pounds ($105 billion) into the banks to keep
them afloat in the 2008 financial crisis.
RBS, 81 percent owned by taxpayers, said earlier in November
it would create an internal "bad bank" to fence off its riskiest
assets, part of a raft of measures designed to heal its
relationship with the government and speed up its eventual
"The new plan will enable reprivatisation at least on the
timetable that would have been achieved otherwise, and possibly
scope to act a little faster," Leigh-Pemberton said, adding that
it was too early to say when a sale might take place.
Outgoing UKFI chairman Robin Budenberg told the committee
that a sale of the government's shares in RBS had not been a
serious prospect at any time in the past two years.
Looking to illustrate UKFI's independence, Budenberg said UK
Finance Minister George Osborne had proposed steeper cuts in
bankers' bonuses than were "commercially acceptable" at RBS and
Lloyds, but the agency had intervened to limit the reductions.
RBS chairman Philip Hampton said last year the bank would be
ready for privatisation in 2014 but admitted earlier in November
the timescale had been pushed back. Industry and political
sources have said it is likely to take 3 to 5 years.
Budenberg was also questioned over UKFI's role in the
ousting of RBS's former chief executive, Stephen Hester. He said
RBS's board were already mulling succession plans but UKFI's
intervention accelerated the process. Budenberg said UKFI
discussed the change with RBS chairman Philip Hampton before
consulting Britain's finance ministry.
Andrew Tyrie, chairman of the Treasury Select Committee,
said UKFI's mandate to run the banks commercially and at "arm's
length" from the government "needs a lot of qualification,"
given the Treasury's involvement in a number of issues.
Britain's financial regulator said in June that RBS had a
capital shortfall of 13.6 billion pounds, the biggest of any UK
bank. McEwan sees its restructuring plan as part of a process of
reshaping the bank to remove all concerns around its capital
strength within the next 2 to 3 years.
The bank plans to hold a core capital ratio of about 11
percent by the end of 2015 and 12 percent a year later, which is
3 percentage points above its current position.
Britain began selling shares in Lloyds at a profit earlier
this year, but a sale of its stake in RBS is much further off,
with taxpayers still sitting on a paper loss of 15 billion
pounds at current prices. Shares in RBS were down 2.6 percent at
1430 GMT, compared with a 0.8 percent decline in the European