RBS shares climb on bid to abandon complex branch spin-off

Shares (Berlin: DI6.BE - news) in state-backed Royal Bank of Scotland (LSE: RBS.L - news) climbed 6.8% on Monday after it disclosed plans to abandon a "difficult and complex" spin-off of more than 300 branches under the Williams & Glyn brand.

RBS has been trying to separate out the business to meet European Commission rules on state aid - following its £45bn bailout during the financial crisis.

The lender, which includes NatWest, remains 72% owned by the taxpayer following the rescue and has struggled to recover from the crisis period, recording a succession of annual losses.

It has been weighed down by big costs including restructuring and multi-billion pound charges for past misconduct as well as the technological complexities involved in the planned spin-off.

Now (Frankfurt: 11N.F - news) the bank and the Treasury have proposed a £750m plan to boost competition in the banking market in an attempt to remove the need for the separation.

Analysts think it could pave the way for RBS to resume paying dividends - which should make the shares more attractive as the Government aims to offload them.

They remain some way off the price paid by taxpayers for bailing them out, so an upturn in RBS' value would represent a step forward in its tortuous progress to coming out of public ownership.

Markets responded with relief after the announcement of the plan, which came after the close of trading on Friday.

RBS is required to sell W&G by the end of the year to meet conditions under its bailout but has been struggling to do so.

The Treasury has been in talks for months with the European Commission over the issue and will now seek formal changes to the state aid commitments.

Competition commissioner Margrethe Vestager will trigger a review of the new plan from RBS which contains a number of measures aimed at helping small and medium-sized businesses.

It includes funding that challenger banks can access to increase their business banking capabilities and allowing business customers of those smaller lenders to use RBS' branch network for cash and cheque handling.

RBS chief executive Ross McEwan said: "If agreed it would deliver an outcome on our European Commission state-aid divestment obligations more quickly and with more certainty than undertaking a difficult and complex sale and would provide much-needed certainty for customers and staff."

The Treasury said: "RBS must deliver on its remaining state-aid commitments and this new plan represents the most effective way of delivering the pro-competition objectives behind them."

RBS will report 2016 annual results on Friday.

It is already on course for another big loss after it said last month that it had set aside an additional £3.1bn to settle allegations that it mis-sold mortgage-backed securities ahead of the financial crisis.

Investec (LSE: INVP.L - news) analyst Ian Gordon said the new £750m provision for the plan to abandon the W&G sale widened the scale of the expected loss to £6.3bn.