It's hard to let go, but RBS needs be returned to market

Let’s get out of this business, and invest in something more worthwhile, writes James Ratcliff.

I was humiliated last night. After dinner in a favourite restaurant I handed my card to the waitress and had the gut-wrenching experience of being told it had been declined.

After a second failed attempt, I fished out another credit card—one I rarely use—typed my dog’s birthday into the card-reader, and crossed my fingers. Fortunately, it worked and we were allowed to leave without having to do the washing up.

Of course, I bank with Natwest, and I ought to have gotten used to this by now. It certainly proves one thing—you really cannot rely on a single bank.

Payments services are not yet a human right, and banks long ago gave up trying to treat their current account holders with respect. The onus is on us not to let them embarrass us in restaurants and encourage people to use premium rate phone lines when we need their help

In this climate, it is no surprise that credit unions—resolutely local lending and savings organisations—are seeing a resurgence

This latest payments fiasco comes the same day that Bank of England governor Mervyn King told us that we, as majority stakeholders, need to cut our losses in Natwest’s parent company RBS.

"RBS is worth less than we thought and we should accept that and get back to finding a way to create a new RBS that could be a major lender to the UK economy,” he said.

This effectively means separating the bank’s retail and investment arms, but the question remains, how do you create a major lender to the UK economy if you’re going to pare it down to its core retail operations? It hasn’t really worked for Northern Rock.

It is a balancing act. RBS clearly needs some fairly drastic pruning—through its Citizens Bank subsidiary we own and run 1,200 bank branches in the US, which seems a bit extravagant for a state-owned lender. And that’s not to mention RBS’s much-derided investment operation. However, a bank does require scale in order to work on anything other than a very local level.

King was clear in his view that this balance is not unachievable. “I do not believe it’s beyond the wit of man to devise a plan to restructure RBS [and] divide it into a healthy well-capitalised bank capable of lending to UK economy,” he said. “It does mean accepting there are activities that are likely to generate continued losses, and need to be separated from the healthy bank – in that sense it would a be a good bank/bad bank split.

"The whole idea of a bank being 82 per cent-owned by the taxpayer, run at arms' length from the government, is a nonsense. It cannot make any sense.

"I think it would be much better to accept that it should have been a temporary period of ownership only, to restructure the bank and put it back. The longer this has gone on the more difficult it has become to return RBS to the market.”

Definitely not a bad idea, let’s get out of this business, and invest in something more worthwhile.

But, while I know it’s never a good idea to throw good money after bad, I wonder if we could stretch to buying the bank a few new computers before we get rid of it. At least then Natwest customers will actually be able to access their money when they need it, and we will have achieved something.

Photograph: Getty Images.

James Ratcliff is Group Editor of  Cards and Payments at VRL Financial News.

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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