* RBS takes responsibility for resolving breakup debate-CEO
* Bank must address legitimate stakeholder concerns-CEO
* Treasury recommendations expected in coming weeks
By Matt Scuffham
LONDON, Oct 18 Royal Bank of Scotland's (RBS)
new Chief Executive Ross McEwan said a government review
into whether the bank should be broken up is distracting
executives looking to revive the fortunes of the state-backed
Britain's finance ministry has asked investment bank
Rothschild to examine if RBS, 81 percent owned by
taxpayers, should be made to hive off its problem loans into a
separate legal entity and a decision is expected in coming
McEwan, who became chief executive this month, does not want
the issue to undermine his efforts to focus the bank more on
customer service, an area which senior executives concede was
neglected after its 45.5 billion pound ($73.7 billion) 2008
Advocates of a break-up, including former Bank of England
Governor Mervyn King and ex-UK finance minister Nigel Lawson,
have said it would leave the bank better placed to lend and
support the UK economy.
"The debate you read about in the papers - and that has
taken up too much time of the management team - has been about
what is now a small proportion of our activity. We are taking
responsibility for resolving these debates," McEwan said in a
memo to staff on Friday seen by Reuters.
Even if a formal break-up is not recommended, RBS is
considering creating its own internal "bad bank" to house more
of its problem loans, industry sources have said.
In the memo, McEwan said a bad bank would only affect a
small proportion of RBS's overall business. Ninety percent of
the bank's assets are likely to be unaffected by the review,
according to analysts.
RBS's capital position is coming under closer scrutiny, and
a consultation being finalised by Britain's financial regulator
has raised concerns UK banks may need to hold more than they had
Morgan Stanley analysts estimated core capital at the end of
this year, under full Basel rules, would be 9.3 percent at RBS,
the same as at Barclays but compared with more than 10
percent for HSBC, Lloyds and Standard
The regulator said in June RBS had a capital shortfall of
13.6 billion pounds ($22 billion), the biggest of any UK bank.
McEwan sees the Treasury review as part of a process of
reshaping the bank to remove all concerns around its capital
strength within the next two to three years.
In the memo, McEwan said the bank's future will not be
determined by whether it operates in particular areas or where
its bad loans are held, but by how it treats its customers.
"The future of this company is about how good a job we do
for our customers, including those who are having difficulty
repaying their loans," McEwan said.
The 56-year-old New Zealander, who ran RBS's retail business
for a year before he succeeded Stephen Hester, has pledged to
return customers to the top of the agenda after his predecessor
spent four years repairing its battered balance sheet.
Unlike Hester, McEwan has spent the majority of his career
in retail banking and was previously head of retail banking at
Commonwealth Bank of Australia, where he was credited
with lifting retail banking profits by 50 percent in five years.