Wednesday, November 3, 2010

Japanese to buy $6.4B RBS portfolio

(FT) -- Bank of Tokyo Mitsubishi is poised to buy a £4bn (U.S.$6.4bn) portfolio of project finance loans from Royal Bank of Scotland in the latest move by the part-nationalised UK bank to offload legacy assets.

People close to the talks said a deal could be finalised in the coming weeks, possibly by the end of the year.

The transaction would mark the first major sale of oil and gas financing assets since the financial crisis.

The portfolio is understood to be largely oil, gas and power assets in Europe and elsewhere in the world, although there is also a portion of UK infrastructure finance included in the deal.

RBS, in which the UK government has a 70 per cent shareholding following a vast state bail-out, has been shrinking its balance sheet aggressively, shedding swathes of "non-core" assets over the past year.

Under Stephen Hester, the chief executive brought in to clean up the bank following its bail-out by the state, RBS identified £258bn of its assets as non-core. By the end of June, it had reduced that tally to £174bn.

It has also been selling discrete operations, such as a carved-out network of more than 300 branches, to Santander, and its payment processing operation, to private equity buyers.

RBS has now begun the process of selling its insurance division, which includes the Direct Line, Churchill and Greenflag brands. Last week it appointed Goldman Sachs and Morgan Stanley to advise on the options for the business ahead of a likely flotation.

As was the case with the sale of the branches and the payment processing business, RBS is being forced by European regulators to offload the insurance arm, as a condition of the state aid it received during the financial crisis.

The insurance business could be worth as much as £4bn, according to bankers, but was loss-making in the first half of this year.

The market's expectations for RBS's third-quarter results, due on Friday, are muted, with the tone likely to have been further subdued by cautious guidance in an interim management statement from fellow part-nationalised rival Lloyds on Tuesday.

In particular, analysts are braced for higher loan loss impairments driven by RBS's exposure to the troubled Irish economy via its ownership of Ulster Bank. However, net interest margins may show some improvement, and the investment banking result should be relatively resilient, analysts believe.

By Patrick Jenkins,
Source: FT.com

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