During the 15-minute interview conducted at RBS’ London offices, Rory Cullinan, chief executive of the Non-Core Division, said that letting assets “run off” was the most capital-efficient means of shrinking the bank’s remaining £35 billion (€43 billion; $54 billion) of property.
Cullinan noted that RBS had written off 10 percent of that total but, of the remaining 90 percent, half of the assets would be “run off” and half would be “actual sales”, with running off assets being the most capital-efficient course of action.
The interview, which also drew comments from Cullinan on why he thought Europe would not see the deluge of loan sales often predicted, was seized upon by delegates at the PERE Summit in London’s West End with a panel session following on debt and also a workshop on restructuring particularly referring to it.
Cullinan said on Europe’s banks in general: “It has been clearly signposted that there is going to be a large volume of loans coming to the market, but so far that just hasn’t happened and I don’t see it happening going forward in any significant scale.” He said the reason for that was simple, but not well explained by the market.
European banking stress tests showed Europe’s banks had a €115 trillion “hole”, but up until September banks had actually increased their balance sheets by one percent, not decreased them. Only three banks had actually shrunk the balance sheet, of which RBS was one.
“Deleveraging is a bit of a myth,” he said, “The problem is whether you are forced to sell loans at a discount, but there is a reasonable chance you are going to destroy capital, so you get into a death spiral.” He also noted that action by the European Central Bank had eased some of the pressure.
Click on the videos below to hear the interview question by question.
PERE: RBS Non-Core Division: What is it?
PERE: What progress has RBS made in reducing the assets of the Non-core division?
PERE: What is left in the real estate portfolio today?
PERE: Could you tell us about Project Isobel?
PERE: Why haven't we seen many loan sales from European banks?
PERE: Is there a target with regards to disposals from RBS' Non-core portfolio?
PERE: Do you see opportunistic real estate funds having a role with RBS as a potential buyer?