Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) shares tumbled on the London market this morning after the company released its numbers for the three months ended September. The bank, which is partly owned by the government of the United Kingdom, showed a loss of 634 million British Pounds. Stock had fallen 5.35% to 347.95 pounds at time of writing.
This morning’s earnings numbers missed the consensus of analysts. The were expecting the bank to record earnings of around 440 million pounds for the three month period. The surprise loss was not the biggest news the company released this morning, however. That distinction falls to the bank’s restructuring plan which was detailed this morning.
RBS Bad Bank
Along with the release of this morning’s earnings, Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) revealed that it would be setting up a section of its business to take care of bad assets. The “bad bank” is designed to protect RBS from the riskiest assets it owns.
According to this morning’s release, 38 billion pounds of loans will be put in the new business segement, which is to be called the capital resolution division. The movement will start early next year. Doing that will free up an estimated 10-11 billion pounds of capital according to the plan.
The Government of the United Kingdom is eager to sell its share in the bank, and the bad bank is just part of a group of new rules that is hoped to speed up the privatization of the institution. The government of the European country owns about 81% of the outstanding shares in Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS).
The first part of that privatization will be the spinning off of the bank’s American division next year. That segment, which is called Citizen’s, will be put up for a partial IPO some time next year, and will be fully made public by 2016. The move will help to balance public opinion in the United Kingdom.
The bail out of Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) was one of the most difficult and politically challenging aspects of the 2008 financial crisis in the United Kingdom. The issue is a deeply political one, so the RBS bad bank will likely be criticized by political opponents rather than financial ones.