RBS lending policies in doubt

A senior banker at the Royal Bank of Scotland has admitted that the lender may see its independent decision-making curtailed as a result of the UK Government taking a majority stake in the company.

Eric Capp, global head of leveraged capital markets at RBS, said: “The impact of government support in banks will increasingly be seen with regards to capital allocation.”

Last month, RBS accepted the offer of emergency rescue funds from the government to shore up its capital adequacy ratio. It said it would raise £15bn through an equity issue at 65.5p a share underwritten by the government. This could give the state a 60% stake in the bank.

As part of the bailout package, which also included an issue of £5bn of preference shares to the taxpayer, Chancellor of the Exchequer Alistair Darling has urged RBS, and other banks, to focus on supporting UK homeowners and smaller businesses.

Capp added: “I’m not sure it will be so big an impact but you just don’t know. There is a preference to keep the money at home backing smaller businesses and homes. There is capital but how will it be allocated?”

RBS has been one of the most active providers of leveraged loans to back buyouts across Europe, even during the downturn of the past year. Major deals that RBS has arranged financing for include Candover’s US$3.8bn buyout of oil services group Expro and the purchase of German building materials group Xella by PAI Partners and Goldman Sachs.

Many in the market now believe the bank, although not obliged to do so by Alistair Darling, may feel forced by its new majority shareholder to focus more on smaller UK activity.

“The great unknown is that lots of bankers have turned into civil servants,” said Martin Horne, director of debt investor Babson Capital Europe. “It’s unclear what that means for banks and how it affects leveraged products. We will have to wait and see but there may be a call to repatriate capital.”