RBS Shakes Up City Ties As Sell-Off Looms

The taxpayer-backed Royal Bank of Scotland (RBS) is conducting a shake-up of its key City relationships as George Osborne prepares to outline details of his blueprint for privatising the bailed-out lender.

Sky News has learnt that Ross McEwan, RBS's chief executive, has ordered a review of its corporate broking arrangements, which are currently handled by Morgan Stanley and UBS, the investment banks.

Corporate brokers act as a public company board's eyes and ears in the market, and while the role is not itself well-remunerated, it puts those banks in pole position to work on more lucrative mandates such as capital-raisings and asset sales.

Senior City sources said on Thursday that JP Morgan was angling for one of the slots as RBS's joint corporate broker.

If JP Morgan is ultimately appointed to the role, it would be significant because for the last two years the Wall Street giant has been engaged as the privatisation adviser to UK Financial Investments, which oversees taxpayers' 80% stake in RBS.

The conflict that would arise from a single firm advising both UKFI and RBS meant that the Treasury agency was now undertaking its own beauty parade of bankers to replace JP Morgan in that role, the sources added.

News of the shake-up comes a fortnight before the annual Mansion House dinner at which Mr Osborne may indicate further details of an eventual plan to sell the Government's stake in RBS.

The Chancellor said before the General Election - and again in his speech at the CBI's annual dinner last week - that he did not want to be a long-term owner of bank shares, and has already pledged that around £9bn of Lloyds Banking Group stock will be sold during the next 12 months.

RBS was among a group of banks fined billions of pounds in total by regulators last week for traders' attempts to manipulate foreign exchange markets, while the Edinburgh-based lender is braced for an even bigger settlement over its sale of mortgage-backed securities which took place before the financial crisis.

That penalty, which should come later this year, will clear a path to the Treasury commencing a sell-down of its RBS holding.

City insiders said that JP Morgan was keen to land a role acting for RBS, in part because working for the Treasury on the sale of banking shares has so far generated more prestige than income.

RBS's shares continue to trade well below the price at which the Government could claim to break even if it begins the selling taxpayer's interest.

Sky News revealed earlier this week that RBS was contemplating a surprise bid for Granite, a £13bn mortgage portfolio which sits within a subsidiary of UKFI.

A bid would reflect the bank's aims of investing primarily in its UK retail and commercial business, to grow its position in mortgages and to utilise surplus funding.

RBS had a loan-to-deposit ratio of 95% at the end of the first quarter of 2015 and £157bn of liquidity, some of which could be deployed on assets such as those held by Granite.

Under the terms of its rescue by the Treasury in 2008 and amended by the European Commission last year, RBS is restricted from making acquisitions where they involve a price above a certain threshold until it completes the sale of hundreds of branches being rebranded as Williams & Glyn.

That disposal is unlikely to be finalised until 2017, although sources close to RBS said that any attempt to buy parts of Granite would comply with the EU state aid agreement.

RBS, JP Morgan and UKFI all declined to comment on Thursday.