Britain’s plan to free Royal Bank of Scotland (RBS) from an obligation to sell more than 300 branches risks a clash with the European Commission (EC) weeks before the government is due to start formal talks to leave the trading bloc.
European regulators originally told RBS to sell the branches by 2013 to prevent the state-backed bank, Britain’s largest small-business lender, from having an unfair advantage. The sale was one of the conditions attached to RBS’s £45.5 billion ($55.87 billion) state bailout in the financial crisis.
RBS has spent more than £1.5 billion and seven years trying to spin-off the branches — which were to be branded Williams & Glyn — but has struggled to separate them from its IT system.
Now British Finance Minister Philip Hammond is pushing for RBS to be let off the EU’s demand to sell the branches in return for providing around £750 million ($931.73 million) to help to boost competition in banking.
For the plan to work, the EU would have to approve changes to the terms of RBS’s government bailout, which included the sale of the branches and other divestments. The British government and the EC say they have had “constructive” discussions over the matter.
RBS shares surged to a one-year high on Monday as investors bet the proposals would be accepted. An end to the bank’s state aid commitments is seen as a big milestone on the path toward the bank’s recovery and the restoration of dividends.
But the plan still needs to be vetted by the EC, which may reject the British government’s proposals and seek to impose tougher conditions on RBS to free it from the branch sale obligation, according to sources familiar with the matter.
The EC will have to assess whether the measures that RBS will take are equivalent to selling the branches, a process likely to take at least several weeks.
On paper, analysts said the proposals looked to be very much in the bank’s favor, given it was expected to have had to sell Williams & Glyn with a hefty writedown.
EU officials said on Monday that they were still waiting for formal notice of RBS’ plan, but that it would go through thorough vetting.
RBS declined to comment.
The British government will argue that the new plan would deal with the state-owned bank’s EU obligations more quickly and with more certainty than selling off the branches.
The government will also say that the current plans would boost competition to a larger number of smaller banks, according to government officials.

Source: Arab News