Full-scale RBS split into ‘good and bad bank’ to be rejected

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The Treasury is set to unveil its verdict on a break-up of Royal Bank of Scotland shortly after the Tory Party conference, The Independent on Sunday can reveal.

A Government-commissioned report is expected to reject a full-scale split into a good and bad bank, but could recommend hiving off RBS’s troubled Irish business in a bid to appease senior members of the Parliamentary Commission on Banking Standards. They favour a break-up of RBS, which is majority-owned by the state.

The findings were expected earlier this month, but their report has been delayed as a result of the “size of the undertaking”, sources said.

It is understood the report, being overseen by Rothschild, could be published shortly after the party’s conference, which kicks off next Sunday.

The bank has close links to the Government and employed John Kingman as global co-head of the financial institutions for two years before his return to the Treasury last year.

Mr Kingman oversaw the bailout of the banks during the financial crisis and also led UKFI, the body set up to oversee the state’s holding in the banks.

There have been concerns expressed in some quarters that the review will simply report that a break-up is not in the Government or the bank’s interests as it gears up towards returning to private hands. Any major break-up would inevitably delay this, and probably rule out a target of starting the process late next year.

Andrew Tyrie, chairman of the Commission, last month fired a shot across the Treasury’s bows by publishing an open letter urging that all options for the state-backed lender’s future should be “examined as a matter of urgency”.

Members of the Commission, notably Lord Lawson, have argued that a split into a good and a bad bank would lead to a stronger RBS that would be in a better position to support the UK economy through lending.

RBS is opposed to the move, however, with senior figures at the bank believing that most of the hard work aimed at dealing with the legacy of disgraced former boss Fred Goodwin is done.

RBS last week sold off another 20 per cent of Direct Line, the insurer, which raised £630m. It has also promoted Ross McEwan to take over from Stephen Hester as chief executive.

Last week the Government began the privatisation of Lloyds Banking Group, selling off 6 per cent for £3.2bn.