Osborne looks to split RBS into ‘good’ and ‘bad’ banks; eyes Lloyds sale

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Chancellor George Osborne has announced Royal Bank of Scotland may be split into a good and bad bank and confirmed the Government is actively considering its options to sell off shares in Lloyds.

Speaking at the annual Mansion House dinner last night, Osborne said the Government will conduct an “urgent investigation” into whether to hive off RBS’s toxic loans.

He said a bad bank will be established if it meets three objectives – it supports the British economy, is in the interests of taxpayers and accelerates the bank’s return to private ownership.

Osborne said: “We will urgently investigate the case for taking the bad assets – those mistakes of the past – out of RBS. We will judge whether this will allow the bank to focus on its future supporting the British economy.”

Osborne said the Government will conclude the review and make a decision this autumn.

On Lloyds, Osborne said the Government is likely to sell the first tranche of shares to institutional investors, followed by an offering to retail investors.

He said: “Lloyds is in a good position. Investor interest is growing and shares are already trading at around the price where selling would reduce the national debt. That is something we all want to see.

“I can announce that we are actively considering options for share sales in Lloyds. Of course, we will only proceed if we get value for the taxpayer. And we have no pre-fixed timescale or method of disposal.

“For the first block of government shares, an institutional placement is likely to be the most effective way of managing risk and getting value. So five years on from the financial crisis, we can now take the first steps to returning Lloyds to the private sector where it belongs. And for later sales of shares, we will consider a retail offering to the general public.”

On the Parliamentary Commission on Banking Standards’ final report, published this week, Osborne said its “central judgment is absolutely right” and the Government supports the recommendations on new criminal sanctions for senior bank management and cancelling bonuses where banks are bailed out.

Osborne said he will respond to the report in full next month, but promised where legislation is needed, the Banking Bill will be amended to ensure the recommendations can be enacted quickly.