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The governor of the Bank of England said on Wednesday that RBS did not make any sense and should be broken up. Only hours later the bank's U.K. customers were swearing at ATMs when their requests for cash were refused.
It was a computer glitch, sadly, not a fit of pique. Unfortunately, it was the second systems failure to afflict RBS in less than a year, and it will do nothing for the reputation of the sprawling banking conglomerate whose owners, British taxpayers, would dearly like to be shot of it.
Sir Mervyn King seemed to agree, judging from the evidence he gave to the banking standards commission when he said that nothing had been achieved in almost five years since the former Labour government acquired 82 per cent of RBS in the world's biggest bank bailout, worth some £45-billion ($69.7-billion) in guarantees. "We're four and half years on and there's no sign of it going back to the private sector," he said. Sir Mervyn wants the present government to bite the bullet and adopt the Swedish model – that is, to formerly nationalise RBS, split it into a "good" and "bad" bank, selling the good bits while shouldering the losses on the bad bank's balance sheet as irrecoverable.
RBS insists it is on course for privatisation in 2015 and George Osborne, the chancellor of the exchequer, says there are obstacles to splitting it up and selling the good stuff. It's easy to see what these obstacles might be: the admission that some £9-billion of taxpayers' money had been lost in bailing out a bank that played a big role in the financial crash. RBS went on a mad expansion drive which culminated in the £49-billion takeover of ABN Amro in 2007, a deal which left the bank hugely over-indebted and vulnerable.
Still, Sir Mervyn, who reckons that there are still too many banks "too big to fail" and too many bankers with too much sway over government ministers, is probably right to insist that government must choke down the medicine to cure the patient. In its present form, RBS is still a creature of the past, a conglomerate that cannot deliver the opportunistic local business lending that might help to kickstart economic recovery. That was made clear when Stephen Hester, its chief executive, announced last week annual loss of £5-billion and confirmed that it would still make available a bonus pool of more than £600-million for its staff. Not many of them or even any of them were responsible for the ABN Amro debacle but it still sticks in the craw of the taxpayers who own the bank.
Indeed, the government still believes that bankers deserve special consideration due to the large contribution that financial services still makes to the U.K. economy. Hence, the desperate but failing effort of Mr. Osborne to oppose the EU's proposed cap on bank bonuses. But even if the Tory leadership is right that bankers will leave London to escape the cap, they should consider whether these same bankers are the country's future or its past.
My guess is that financial hypermarkets, such as RBS, Lloyds and Bank of America will rapidly become dinosaurs and lending will follow different, more efficient routes through non-bank institutional lending at the top of the market and via local banks and credit unions at the bottom. If the global lending market fragments into specialist and local markets, the scale and concentration that finances huge bonuses will be lost. And the masters of the universe will be found to be naked emperors.
Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.
Carl Mortished