RBS In Talks To Sell Equity Derivatives Unit

RBS In Talks To Sell Equity Derivatives Unit
By Chandres (Own work) [CC BY-SA 3.0], via Wikimedia Commons

The British government-owned Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) (AMS:RBS) is talking to an unnamed bidder for disposing of its equity derivatives unit, according to a report in Dealbook.

According to a Bloomberg article, which quoted Structured Products Magazine, the bank is also close to clinching a deal to sell its structured retail investor products unit to BNP Paribas SA (ADR) (OTCMKTS:BNPQY) (EPA:BNP), though financial details are not yet available.

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RBS to focus on its lending

Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) (AMS:RBS) is making good on its June promise to exit all businesses involving equity derivatives and retail structured instruments, and focus on core British operations in commercial and retail lending. The government assumed ownership of 81% shares of the bank in return for bailing it out after the 2008 financial crisis. The bank is also planning to implement a sale of shares in its US Citizens Financial Group in the second half of 2014.

The bank reported a lower loss of £828M in the third quarter compared to a loss of £1.405B in the same period last year. The bank said it intended to create an internal “bad bank” which will assume £38B of bad and doubtful loans/assets. The bank said the action could result in a write-down of up to £4.5B in Q4 and adversely impact its capital adequacy ratio in the short term. The bank earlier conducted a review on whether it was practical to transfer these toxic assets to an external bank, but apparently decided that the effort, risk and expense involved was not justifiable. The internal bad bank is expected to be operational by January 1, 2014.

RBS credit rating

Earlier this month, ratings agency Standard & Poor’s (S&P) downgraded Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) (AMS:RBS)’s credit rating from A/A-1 to A-A/2 with a negative outlook, citing the “negative trend that we see for UK banking industry risk.” The agency also said, “The lowering of the ratings reflects our view of the changes that RBS has announced to its restructuring plan, which include the creation of an internal ‘bad bank‘ and the accelerated disposals of higher-risk assets. In our view, these changes create additional near-term execution risks and further delay the group’s return to sustainable organic capital build.”

The bank did not provide further details of its proposed divestiture of the equity derivatives unit saying that there was no agreement in place yet, nor was it certain that one could be reached.

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Saul Griffith is an investor in stocks, commodities and forex, writing under a pen name. Saul has top accounting qualifications and extensive experience in industry and the financial markets. He also has an abiding interest in breaking news that could be a harbinger of new trends and give insight into an instrument’s potential for providing value, growth or yield.
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