Royal Bank of Scotland closes final chapter on 'bad bank'

LONDON (Reuters) - Royal Bank of Scotland has closed the “bad bank” it set up to sell large chunks of its unwanted assets nearly a decade after RBS was rescued in a 45-billion-pound bailout by the British government.

People walk past a Royal Bank of Scotland office in London, Britain, February 6, 2013. REUTERS/Neil Hall/File Photo

The closure of its Capital Resolution division is a milestone on RBS’s road to recovery. Its balance sheet is around 1.5 trillion pounds lighter than when it began selling off assets in 2008. And last week the British government said it planned to sell 3 billion pounds of RBS shares in the next financial year, beginning a reprivatisation of the bank, 71 percent-owned by British taxpayers.

RBS announced the bad bank closure in a memo on Thursday to the 80 remaining staff who work there, closing a chapter on one of the biggest ever financial restructurings for what was once the biggest bank in the world.

“The closing of Capital Resolution is a key moment for RBS,” CEO Ross McEwan said.

“It has taken nearly 10 years to undo the consequences of the global ambitions pursued by RBS in the run-up to the crisis,” McEwan said. “We have gone from a bank with a balance sheet bigger than UK GDP to the smaller, safer bank we are today.”

RBS said it had folded the remaining 23.1 billion pounds worth of unwanted assets back into the bank to be sold or disposed of, including a 7 billion pound stake in Saudi Arabian bank Alawwal.

The remainder also includes some shipping assets and trading exposures, RBS said.

In 2008, RBS had a balance sheet of 2.2 trillion pounds - almost double Britain’s annual economic output at the time - having staged a meteoric rise from its origins as a small Scottish bank. At that time, RBS operated in over 50 countries.

Britain pumped 45.5 billion pounds into RBS in the depths of the financial crisis, and efforts since then to recoup the money have been hampered by the bank’s plunging share price, regulatory probes in the United States and Brexit.

RBS has reported losses of more than 58 billion pounds since 2008 but last month reported a forecast-beating operating profit in the third quarter that boosted its shares.

On Thursday, RBS shares were down 1.4 percent by 1432 GMT, against a flat STOXX European banks index.

The lender’s shares have risen 23 percent so far this year, buoyed by the bank’s return to quarterly profitability and the promise of rising interest rates in Britain which should help it to earn higher returns on loans.

Editing by Adrian Croft and Jane Merriman