RBS quashes talk of merger with Halifax

GEORGE MATHEWSON, chief executive of the Royal Bank of Scotland, yesterday dismissed mounting talk of a fresh round of consolidation in the banking sector and squashed rumours of a merger with the Halifax.

He said prospects for further banking mergers were receding because of high valuations and new accounting rules on the treatment of goodwill.

"The new rules are very negative for banks taking over other banks. So I don't see much prospect for consolidation in the sector in the coming year," he said.

Asked about the Halifax, Mr Mathewson added: "Halifax is a legacy business - it is what it has been rather than what it is going to be. It does not fit very well with what we do. We are a fast-moving, innovative business with a range of different businesses and if we merged with them, where would the growth come from?"

But Mr Mathewson said the bank still had an appetite for other acquisitions outside the sector, including UK building societies "at the right price".

Shares in RBS leapt 7 per cent yesterday as the bank reported full-year profits up 32 per cent to pounds 1.001bn, well above forecasts. The shares closed up 62p at 932p, valuing the group at pounds 7.67bn. Profits at the main UK retail bank rose by 15 per cent to pounds 780m as it boosted its volume of loans and stabilised lending margins.

Analysts were impressed by a turnaround at Direct Line, the wholly-owned insurer which suffered a slump three years ago as other insurers began to copy its methods. Helped by hardening motor insurance premiums, profits at Direct Line rose 78 per cent to pounds 64m.

Asian difficulties forced the bank to set aside pounds 146m to cover bad debts in Indonesia. Provision for other bad debts increased by 26 per cent to cover extra risks associated with its credit card businesses.

New retail ventures, including partnerships with Tesco and Virgin, made a loss of pounds 52m due to start-up costs. This was offset by the sale of part of a stake in Banco Santander, the Spanish bank, for pounds 57m. Its US subsidiary, Citizens, saw profits rise by 31 per cent to pounds 247m.