Good bank, bad bank: split RBS or it'll never sell, warns Mervyn King

Outgoing Governor warns Government their plan is failing and says restructure is only hope

Sir Mervyn King has told the Government to “face up” to the fact that its plans to return the Royal Bank of Scotland to private hands are failing –  and urged ministers to perform radical surgery on the lender for the sake of the stuttering economy.

In politically explosive comments,  the outgoing Governor of the Bank of England called on the Chancellor to scrap his existing plans to sell the majority state owned RBS back to the private sector in one piece. It should instead be split in two, creating a “bad bank” and a “good bank”, he advised.

“The arguments for restructuring sooner rather than later are powerful ones” Sir Mervyn said. “At present RBS is a portfolio of different activities that doesn’t sit well enough together to make the market want to bid for it.”

The Governor stopped short of urging the Government to acquire the remaining 18 per cent of RBS shares it does not already own, but any restructuring of the bank along the lines Sir Mervyn outlined would probably first require full nationalisation. Sir Mervyn described the present ownership arrangements, whereby the state holds an 82 per cent stake in the bank but exercises no direct control, as “a nonsense”.

Giving testimony to the Banking Standards Commission, the Governor suggested the resultant RBS good bank – freed of the larger group’s bad legacy assets – could be sold to the private sector within a year, where it could support lending. The bad bank, he said, should be kept in state hands while it ran down its toxic balance sheet, even though this would inevitably mean accepting a loss on the £45bn taxpayer stake in the lender, which had to be rescued at the height of the financial crisis.

Sir Mervyn’s comments come just nine days after George Osborne, appearing before the same Commission, explicitly rejected the idea of nationalising and splitting up RBS on the grounds that it would be too expensive for the public purse. The Chancellor said: “I’d have to go to the House of Commons and justify spending several billion pounds, perhaps up to £8bn, £9bn or £10bn, on nationalising the Royal Bank of Scotland.”

But Sir Mervyn said that ministers needed to stop worrying about the public costs and focus on repairing the lender. “We should simply accept the reality today that it [RBS] is probably worth less than we thought and we should find a way to get an RBS that can be useful to the UK economy” he said. “We shouldn’t worry about the apparent scale of the public debt”.

The Treasury said tonight that the Chancellor will be sticking with his original plan, which is to allow the RBS chief executive, Stephen Hester, to nurse the larger group back to health with a view to selling stakes in the entire group back to the market as soon as next year. “Our position on this hasn’t changed” said a Treasury source.

RBS last week unveiled a £5bn loss for 2012, which was driven by fines for various misdemeanours by its bankers including insurance mis-selling and interest rate manipulation. The previous Labour government rescued RBS in 2008 buying £45bn of stock. To realise a profit on this the RBS share price would need to rise to 500p from today’s level of 309p. Lord Oakeshott, the Liberal Democrats’ former Treasury spokesman, said: “The Governor has thrown down the gauntlet to the Chancellor. Of course, he’s right. It’s a nonsense for RBS, the bank we own, to be run at arm’s length, and it must be recapitalised or broken up before it can go back to the private sector. Lib Dems know our economy can’t grow as long as RBS staggers on as a zombie bank, stabbing British business in the back with negative net lending.”

Mervyn to van man in need of loan: Go Swedish

When Mike Benson was denied a £10,000 loan for a new Ford Transit van by the Bank of Scotland despite owning a profitable air compressor parts business in Worcestershire – instead receiving a “patronising” offer of counselling – the 65-year-old vented his fury in a letter to Bank of England Governor Sir Mervyn King.

While he hoped the letter might find its way to Sir Mervyn himself, he did not expect a personal reply – yet that was exactly what he received, with Britain’s central banker telling Mr Benson that he too was fed up of banks denying loans to viable enterprises.

“I was sorry to read of the difficulty you have had in trying to replace your transit van,” he wrote. “I can fully understand how maddening that, and the behaviour you describe from the banks you have spoken to, must have been.” He suggested Mr Benson try one of the new banks operating in the UK, such as Swedish firm Handelsbank.

“I was surprised and delighted when I got the letter that a person in his position had bothered to write to someone in my position,” said Mr Benson. He said he needed a new van after one of his employees ran an ageing vehicle through a puddle, and eventually purchased one with his own cash. 

Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
There have been various incidents of social media users inadvertently flouting the law

footballChelsea 6 Maribor 0: Blues warm up for Premier League showdown with stroll in Champions League
Arts and Entertainment
Princess Olga in 'You Can't Get the Staff'
tvReview: The anachronistic aristocrats, it seemed, were just happy to have some attention
Life and Style

Board creates magnetic field to achieve lift

Renee Zellweger as Bridget Jones
ebooksAn unforgettable anthology of contemporary reportage
Those who were encouraged to walk in a happy manner remembered less negative words
Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
Sudan, the last male northern white rhino
environmentThe death of a white northern rhino in Kenya has left the species with a single male. These are the other species on the brink
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth