The Treasury is reportedly considering injecting another £1.5 billion into Royal Bank of Scotland if a report recommends the lender be carved up.
Investment bank Rothschild has been tasked with reviewing whether the 81% state-owned lender should be split into a “good” and “bad” bank.
If it calls for a split, RBS will reportedly need more capital, the Daily Telegraph said. However, Chancellor George Osborne has said he is not prepared to put more taxpayer capital into the bank, so the Treasury is reportedly considering recycling funds from its so-called “dividend access share” – which prevents RBS paying dividends to normal shareholders.
Mr Osborne triggered the review into a break-up of the bank in June, and Rothschild is expected to report back in the autumn. The Government hopes to boost the economy and revitalise RBS by refocusing it on UK corporate and retail banking, and believes splitting off its toxic assets could assist with this.
Mr Osborne said at the time: “We’re not prepared to put more taxpayer capital into RBS as part of this process.”
The golden share was put in place at the time of the bank’s £45 billion bailout in 2008 to give the Government first access to any dividends paid by the bank.
The Chancellor said in June that the Government was prepared to discuss “how, for a fair price, we get rid of the dividend access share”.
The report said RBS would have to compensate the Government with £1 billion to £2 billion to buy out of the arrangement, with the Treasury considering whether to recycle those funds back into RBS shares to bolster its balance sheet. However, doing so would potentially increase the state’s stake in the bank.
Lenders’ capital levels are currently under intense scrutiny by regulators, as they force banks to hold bigger buffers against future financial crises.
RBS last week ended uncertainty over its leadership by confirming that retail boss Ross McEwan will take over from outgoing chief executive Stephen Hester.
Figures last week showed RBS swung out of the red with pre-tax profits of £1.4 billion against losses of £1.7 billion a year earlier, following its first two consecutive quarters of growth since 2008.