Institutional Investors Oppose Split of RBS

Institutional Investors Oppose Split of RBS
By Chandres (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Several institutional investors declared their opposition regarding any plan to split the Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS), and argued that such effort would undercut the recovery of the £45.5 billion bailout money provided by the British government, which controls more than 80 percent of the shares of the bank.

Institutional Investors Oppose Split of RBS

Concerns Regarding The Proposal To Break Up RBS

Royal London Asset Management and Standard Life Investments expressed concerns regarding the proposal to break up the Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) into a good bank and bad bank. Executives from the institutional investors voiced out their hesitations regarding the proposed structure after the release of a report from a panel of parliamentarians, according to report from Mark Kleiman of Sky News.

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Robert Talbut, chief investment officer of Royal London Asset Management said, “I believe the best time to consider splitting RBS has probably passed.”

On the other hand, a person familiar who knows about the conviction of Standard Life Investments regarding the issue said that the investor is against breaking up the Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS). The source said that institutional investors believe that such a move is counter-productive and it would potentially destroy value for shareholders.

Philip Hampton, chairman of the Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) is expected to meet other large institutional investors to discuss the issue.

A final report released by the Parliamentary Commission on Banking Standards (PCBS) stated, “The government should immediately announce a process for considering alternative strategies for the future of RBS, including splitting the bank and putting its bad assets in a legal entity.” In addition, the PCBS recommended that the British government should perform a detailed analysis and report on the issue.

Last March, Mervyn King, outgoing governor of the Bank of England recommended the break-up of the Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) and urged the government to radically restructure the bank in a year. He stated that the bank is “worth less than we thought” and find a way to create a new RBS that would become a major lender to the economy of the United Kingdom.

George Osborne Does Not Support Splitting RBS

On the other hand, George Osborne, Chancellor of the Exchequer does not support splitting Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) because a full nationalization requires a huge amount of tax payers money. He is expected to reveal his plans for RBS and Lloyds Banking Group PLC (NYSE:LYG) (LON:LLOY).

The board of directors of the Royal Bank of Scotland Group plc (LON:RBS) (NYSE:RBS) previously announced that its CEO Stephen Hester will resign from his position by the end of the year.

Meanwhile, analysts at Jefferies recently initiated a buy rating for the stock of Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) with a price target of 390p. They recommended a hold rating with a price target of 65p for the stock of Lloyds Banking Group PLC (NYSE:LYG) (LON:LLOY). Jefferies analysts commented that the idea of breaking the banks is misplaced.

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Marie received her Bachelors Degree in Mass Communication from New Era University. She is a former news writer and program producer for Nation Broadcasting Corporation (NBC-DZAR 1026), a nationwide AM radio station. She was also involved in events management. Marie was also a former Young Ambassador of Goodwill during the 26th Ship for Southeast Asian Youth Program (SSEAYP). She loves to read, travel and take photographs. She considers gardening a therapy.
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