RBS to sell toxic assets

RBS in earlier disposal of toxic assets

Royal Bank of Scotland plans to dispose of most of the toxic assets in its bad bank by the end of this year, 12 months earlier than projected, according to sources.

Britain’s biggest government-owned lender is on course to divest or wind down about 85% of the £28.9bn debt placed in the division at the start of 2014, the source said.

That’s as much as Rory Cullinan, head of the unit, planned to cut over three years. A spokesman for RBS in London declined to comment.

RBS’s bad bank has been an unexpected bright spot for chief executive Ross McEwan, 57.

An economic recovery in the UK and Ireland last year boosted the value of assets and allowed funds, previously earmarked for souring loans, to be reclaimed.

Still, the UK government has been unable to cut its 80% stake in Edinburgh-based RBS after it reported its biggest annual loss in five years for 2013.

About 15% of the assets placed in the bad bank, named RBS Capital Resolution, will remain on the company’s books because they’re too toxic or long-term to exit within the lifespan of the unit, the bank has said.

They include 40-year loans and derivatives that can’t be sold or wound down quickly.

The bank’s ability to further unwind assets of its bad bank will depend on the future strength of the economy at home and abroad.

RBS has benefited from a reviving property market in Ireland, after the property crash had pushed up the share of bad loans in the country.

In Britain, the economy last year expanded at the fastest pace since 2007, fueling housing demand.

RBS created the bad bank last January to dispose of the majority of loans in the division by the end of 2016 and free up capital to meet new regulations.

Assets in the unit declined 38% to £17.9bn at the end of September, placing it on an “accelerated timetable”, the bank said.

The bank said in October it decided to hold onto Ulster Bank after the Irish unit returned to a profit for the first time since 2008 and began to free up money previously set aside for bad-loan losses.

Dublin home prices rose 22% in November from a year earlier, while values nationwide increased 16%, according to the Central Statistics Office.

Prices in the capital remain 38% below their 2007 peak.

Bloomberg