Royal Bank of Scotland shares tumbled more than 5% on news that the Chancellor plans to break the firm into a 'good bank' and a 'bad bank' within weeks, and on fears of costly fines by the US authorities.
The Daily Telegraph reports that RBS, which is 81% owned by the British taxpayer, was the largest blue-chip faller on the stock market Monday.
Traders were digesting the risk of more political interference as they extrapolated the likely cost of a settlement with US regulators from the £8bn ($12.9bn) sub-prime mortgage penalty for JP Morgan over the weekend.
Ian Gordon, banks analyst at Investec, said: 'We find it difficult to work out which government is going to have the biggest detrimental impact on RBS. Will it be the UK, with the threat of a costly good bank / bad bank split ? Or will it be the US with settlements (that) make Libor look like a walk in the park ?
The Chancellor told The Daily Telegraph on Saturday there was no chance RBS would be left in its current form. Over the weekend JP Morgan tentatively agreed a record penalty with US authorities.
The stock was up marginally in early trading Tuesday.
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image: © Mark Ramsey