eirmoney | Royal Bank of Scotland Speeds Up The Sell-Off

Royal Bank of Scotland Speeds Up The Sell-Off

Posted by Anil Bagra | 09 February 2010

Obama’s crackdown on US banks to reduce their autonomy in carrying out riskier transactions has an unlikely victim in Royal Bank of Scotland (RBS).

The Edinburgh based bank’s plans to sell its commodities trading business Sempra to JP Morgan has been scuttled after the latter expressed its inability in acquiring the US operations of Sempra.

JP Morgan will still buy the European operations of the commodity business in addition to the international oil-trading business. However, the US operations of Sempra, which carry proprietary trading in commodities, will not be acquired following the regulatory concerns.

RBS acquired the 51 percent majority stake in Sempra in 2007 when it bought a stake in Dutch bank ABN Amro. The stake sale is also a condition on which British government bailed out the bank with GBP54 billion of taxpayer’s money. RBS is under tremendous pressure from British regulators to cut down its business portfolio. Out of the 54 countries RBS operates in, the bank is forced to cut its exposure in 36 countries.

RBS put Sempra on block in December 2009 as part of its efforts to raise GBP3 billion. The bank announced to have reached in exclusive discussions with JP Morgan as recent as January 2010. However, the negotiations were quickly followed by US President Obama coming up with plans to reduce bank’s risk taking capabilities prompting JP Morgan to stall the negotiations.

Despite RBS losing money in most of its operations, Sempra remained profitable and the American gas and power division contributed heavily towards the profits due to the proprietary trading business model.

Now the bank is reportedly considering selling the American operations to Sempra Energy which controls the remaining 49 percent in the joint venture.

After the stalled stake sale in Sempra joint venture, the bank is trying to sell its payment processing division, WorldPay. The business is understood to have received interest from 45 parties. RBS WorldPay has the distinction of being the largest payment processing firm in Europe and the fourth biggest globally. Reuters reports that the business will potentially fetch US$4 billion. Private equity firms including Silver Lake Partners, Kohlberg Kravis & Roberts (KKR) and Advent International are in fray to acquire WorldPay. Apart from the private equity players, JPMorgan and U.S. Bancorp are also interested. Majority of the big players already own full or a part in payment processing firms and further acquisition of WorldPay will boost their business prospects.

Besides the payment processing division, RBS is also forced to sell 318 branches by European regulatory authorities. Among the interested parties are National Australia Bank, Santander and Virgin Money.