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RBS warns of 'significant' financial impact over Williams & Glyn spin-off delay

Published 28/04/2016

RBS said the overall financial impact 'is now likely to be significantly greater' than previously thought
RBS said the overall financial impact 'is now likely to be significantly greater' than previously thought

Royal Bank of Scotland has warned of a "significantly" greater-than-expected hit from plans to spin-off its Williams & Glyn arm and revealed it may not meet its deadline to offload the business.

The group, which posts first quarter figures on Friday, said there was a "significant risk" that it would not meet the deadline to separate the 316-branch Williams & Glyn business by the end of 2017.

It is now looking at other ways to spin-off the business, adding the "overall financial impact on RBS is now likely to be significantly greater than previously estimated" due to complexities of separating the business.

RBS , which is 73% owned by the taxpayer, has already pencilled in £1.6 billion in costs for the separation of Williams & Glyn, of which it has already spent £1.2 billion.

But the latest update reveals an even greater cost, as the bank battles to separate the business on to its own systems ready for a sale or stock market listing.

It said: "Due to the complexities of Williams & Glyn's customer and product mix, the programme to create a cloned banking platform continues to be very challenging and the timetable to achieve separation is uncertain."

It must sell the network of branches under European Union rules on state aid following the bank's £45 billion bailout at the height of the financial crisis.

RBS has already had to push back the deadline to spin-off the branch business, having originally been due to offload it by the end of 2013.

RBS had planned to sell the branches to Santander, but the deal was called off in 2012.

Joseph Dickerson, equity analyst at Jefferies, said news of the latest set back in the spin-off plan was "negative on two fronts - a potential delay in capital return and also likely higher separation costs".

"Moreover the delays could call into question management execution of RBS's restructuring process," he said.

Bosses at RBS will face questions over the ill-fated plans to separate Williams & Glyn when they unveil first quarter results tomorrow.

The bank is expected to remain firmly in the red amid chief executive Ross McEwan's wide-ranging overhaul of the group.

It is predicted to more than double first quarter losses to £957 million from £446 million a year earlier after seeing income slump in the wake of moves to sell off its Citizens business in the US and dramatically scale back its overseas and investment banking offering.

The City is predicting income to tumble by nearly a third to £2.9 billion, also reflecting the dearth of corporate deals, although it is less exposed than rival Barclays, with investment banking now accounting for only around 15% of the business.

Figures will also reveal the impact of its £1.2 billion payment last month to the Treasury to buy out a crucial part of its £45 billion bailout.

The payment ended a dividend access share (DAS) agreement with the Government that was put in place in 2009 and prevented it paying dividends to any shareholders before the Treasury.

First quarter figures come after a tough 2015 that saw the group rack up its eighth year in a row of annual losses.

The lender posted annual losses of £2 billion in 2015, although this was down on the £3.5 billion reported a year earlier.

It also dealt a blow to long-suffering shareholders as it delayed the prospects of a dividend payout until at least after the first quarter of 2017.

This saw shares plunge on annual results day and the stock is now 32% lower than a year earlier.

RBS also added to the jobs gloom in the sector earlier this month with plans to cut another 600 roles and close 32 branches, while reducing opening hours for hundreds more.

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