UK Banking Rules Risk Bank's Future Market Value

Royal Bank of Scotland Group Plc may lose as much as 20 billion pounds ($32 billion) from its future market value because of planned U.K. regulatory changes, Chief Executive Officer Stephen Hester said. 

The “regulatory environment has changed even more dramatically than we bargained for,” Hester said in the text of a speech at the Manchester Business School yesterday. “U.K. regulatory reforms on their own have probably cost 10 to 20 billion pounds from our future market value.”

The government-sponsored Independent Commission on Bankingrecommended in September the U.K.’s biggest banks should boost capital, implement plans for an orderly bankruptcy and erect fire breaks around their consumer units to boost the stability of the financial system.

The proposals also mean that banks will no longer be allowed to use their consumer units to provide cheap funding for investment-banking units.

Greater regulation is adding to a slower-than-expected economic recovery and turbulent markets, said Hester, 51. The British economy shrank in the first quarter as Britain slid into its first double-dip recession since the 1970s, figures from the Office for National Statistics showed.

“We can cope with these extra challenges, but they use up the outperformance we have achieved and they mean that our shareholders, indeed all bank shareholders, will see value recover less well than hoped,” he said.

Two More Years

The government was forced to rescue RBS at the height of the financial crisis, injecting 45.5 billion pounds of taxpayer money into the lender, making it the costliest bailout of any bank in the world.

Hester said in the speech that the cost of cleaning up the lender he inherited from former CEO Fred Goodwintotals 43 billion pounds so far.

RBS still has two more years of “heavy lifting, significant clean-up costs and vulnerability to outside events” as it restructures its business, Hester said.

RBS fell 0.3 percent to 23.2 pence at the close of London trading yesterday. The shares have rallied 15 percent this year, boosting the Edinburgh-based lender’s market value to about 26 billion pounds. The U.K., which owns 82 percent of the lender, paid an average of 50.2 pence a share for its holding.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net