The 2011 figures Royal Bank of Scotland reported yesterday demonstrate that the strategy to stabilise the bank has, broadly speaking, worked: a £45bn capital injection combined with aggressive deleveraging of the non-core business has created a far sounder institution, as attested to by a core tier one ratio of 10.6 per cent at year end 2011, up from its lows of 4 per cent in 2008. Plenty of risks remain, but the progress made so far is of huge credit to chief executive Stephen Hester and his team.
However, fixing the balance sheet is only part of the process. To “normalise” RBS, the government must remove the shackles of quasi-nationalisation as soon as possible. Only a privately owned RBS will be free to allocate capital in the most efficient way for shareholders and the economy.
To achieve this, the government must do two things: change the capital structure, and accept that it may not recover all of its £45bn investment.