LONDON – Little over five years after the world’s biggest bank rescue, Britain’s Royal Bank of Scotland on Friday announced a new plan aimed at speeding up its overhaul, returning money to taxpayers and returning the company to profit.
The Royal Bank of Scotland, which is principally owned by the British government after a £45 billion bailout, said that it would separate about 38 billion pounds, or $61 billion, of toxic assets into a separate entity within the bank. The creation of the so-called “internal bad bank” came after the government had asked for a review four months ago into whether R.B.S. should be split up but on Friday opted against a breakup.
R.B.S. also said it would focus on retail and commercial banking in its home market, Britain, and would move up an initial public offering of Citizens Financial Group in the United States to next year.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, welcomed the changes and said they were a sign that “a clear vision is emerging at R.B.S. but the implementation of that vision will take some considerable time.” The question for investors now, he said, “is whether to wait for a full transformation, which will take several years.”
Shares in R.B.S. closed down 7.5 percent on Friday at £3.4 on concerns that investors would lose out on the new plan.
Pressure was growing from the government on R.B.S. to speed up the sale of the bank’s troubled loan portfolio, which includes many real estate loans handed out at the top of the market for assets that are now worth just a fraction.
The government sold a 6 percent stake in Lloyds Banking Group, an R.B.S. rival that also had to be bailed out by the government in 2008, in September. And with a general election scheduled for 2015, the government is eager to show progress in returning money to taxpayers.
But Britain’s chancellor of the Exchequer, George Osborne, said on Friday that the government is unlikely to start selling its stake in R.B.S. before the election. “I wouldn’t feel comfortable going to the British people and saying ‘invest in R.B.S.’ until I was absolutely clear that it was on top of its problems,” Mr. Osborne said in an interview with BBC radio on Friday.
Mr. Osborne, who was instrumental in the decision to keep the bank intact but hive off the troubled loans, said in a statement that the bank’s overhaul will allow R.B.S. to “deal decisively with the problems of the past by separating out the good from the bad, and putting the bad loans in a bad bank.”
He also said that “the bad bank should be an internal one, funded by R.B.S., rather than an external one funded by the taxpayer.”
The “actions should create a more resilient institution that is better able to support the real economy without any expectation of further government support,” the Bank of England said in a statement.
R.B.S. plans to sell up to 70 percent of the portfolio over the next two years and the rest a year later. But because this would probably involve selling the assets at a steep discount, R.B.S. said it expected impairment losses of up to £4.5 billion for the final three months of this year, and to report a loss for this year.
Shares of R.B.S. continue to trade well below the threshold at which the government would be able to sell its 81 percent stake at a profit. The government bailout for R.B.S. totaled more than £45 billion and it would make money once the shares trade over £4.4 a share.
Neil Williamson, head of European credit research at Aberdeen Asset Management, said that the bad bank was a “sensible compromise” and that it removed the uncertainty about what R.B.S. would do with its legacy assets. But he also warned that challenges remain, including “the remaining disposals, not to mention navigating the mine field of fine and redress from pre-crisis behaviors.”
R.B.S. also said Friday that its net loss for the three months until the end of September was £828 million, compared with a loss of £1.4 billion in the same period a year earlier. The results fell short of some analyst expectations, which predicted the bank would return to profit in the period. Impairment losses in the quarter were almost unchanged at £1.17 billion.
Ross McEwan, who took over as the bank’s chief executive at the beginning of October, pledged to win back customer trust, restore pride in the organization among employees and work to repay the government for the bailout.
Mr. McEwan, the former head of R.B.S.’s retail banking business in Britain, who joined R.B.S. just a little over a year ago, is expected to focus on retail and commercial banking at home, putting into question the future for the bank’s investment banking operation and units abroad.
R.B.S. said it planned to sell an initial stake in Citizens, the American lender it bought in 1988, in an initial public offering in the second half of next year. That is almost a year earlier than originally planned. R.B.S. said it would sell the rest of Citizens by the end of 2016.
“We are a bank with a significant international reach but the U.K. is our home,” said Mr. McEwan.
The focus on its home market is a stark contrast to the banks ambitions before the financial crisis, when R.B.S. agreed in 2007 to a $98.5 billion takeover of Dutch lender ABN Amro, Europe’s biggest ever banking takeover. Frederick A. Goodwin, the chief executive who drove the aggressive expansion strategy, saw the deal as a way to put R.B.S. and himself at the top of a global banking empire. Instead, it led to his downfall and added to the bank’s troubles, some of which it still struggles to solve.
Since the financial crisis began, R.B.S. has jettisoned around £900 billion, or $1.4 trillion, worth of assets from its balance sheet, and eliminated about 40,000 jobs in a bid to bolster profitability. The bank, based in Edinburgh, improved its capital cushion and scaled back its investment banking operation.
But bad loans from its banking unit in Ireland continue to weigh on performance, and a slow economic recovery made any sale of distressed real estate assets difficult. R.B.S. also had to set aside more than £2 billion to compensate clients who purchased insurance that they could not use or did not need, including 250 million pounds in the third quarter.
An earlier version of this article misstated the Royal Bank of Scotland's net loss in the three months that ended in September 2012. It was £1.4 billion, not £1.4 million.