James Moore: Hold the front page - RBS is after some good publicity

Outlook

Talking of Royal Bank of Scotland, it seems that the bank’s annual meeting will have to wait until June this year, because the bank is closing in on a deal to get shot of the pesky dividend blocker that the Government holds.

The bank’s eagerness to get rid of it seems understandable enough. Privatisation is impossible while it is there. So is the organisation’s quest to be considered as something approaching a normal bank, and putting it about that things are moving sends out an important message of progress on that front.

Buying off the blocker also holds out the prospect of something that has been in shorter supply at RBS than sobriety at a St Patrick’s Day event: good publicity.

The AGM’s delay is designed to capitalise on the latter. It will give all interested parties time to sign off on a deal so it can be presented to the bank’s independent shareholders (who get the final say) with a fanfare at the event.

But hold the front page. The move is problematic on a number of levels. For a start, the value of the blocker is listed on the books of UK Financial Investments – which oversees the taxpayer’s majority stake – at £1.5bn.

RBS may ultimately end up paying a bit less than this, but even so, getting rid of it isn’t going to be cheap and it is worth remembering that this is a bank that lost more than £8bn last year and whose financial strength is less than robust. Surely conserving capital rather than spending it ought to be the order of day?

One of the ways RBS plans to improve its capital position, and enhance profitability, is by instituting yet another round of cost cuts. These will inevitably have an impact on service standards, with the potential for yet more damage to a brand that is already borderline toxic.

A pertinent question RBS’s battered band of independent shareholders might like to raise at the rescheduled AGM is why now?

They must realise that it will probably be several years before RBS could pay anything more than a token sum to them, even were the blocker to be removed tomorrow. As for privatisation? It’s still likely years away.

If RBS wants to demonstrate progress and generate positive publicity it would be better off investing the money it plans to spend on buying out the blocker in its business.

It could be used to help ensure that service to customers doesn’t suffer while the finance director swings the axe, or on upgrading those sclerotic IT systems that have the unfortunate habit of locking customers out of their accounts, or even on making long-suffering small businesses feel a little love.

Movement on these issues would have a far more powerful impact on RBS’s long-term prospects than rushing to throw hundreds of millions of pounds at getting rid of a block on dividends the bank can’t afford to pay.

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