Royal Bank of Scotland (RBS) has announced it has scrapped plans to separate Williams & Glyn's IT systems ahead of a proposed 'spin-off' of the challenger bank, with the project deemed too risky.
In its H1 results the bank claimed that the long-running and expensive IT project was going well: "Good progress has been made on the programme to create a cloned banking platform," it reads. However the bleak economic outlook appears to have forced the board's hand in scrapping the project.
This comes as the bank announced first half results that were below expectations, posting a £2.04 billion loss.
Back in 2013 RBS promised to invest £300 million in developing a separate IT infrastructure for the recently-separated Williams & Glyn’s brand. However, the challenge of creating entirely independent systems, including a core banking platform, and migrating 1.8 million customer's accounts onto it, has proved too difficult.
What isn't clear now is if this is a completely sunk cost, however bosses at RBS clearly believe that the cost of the IT project has outstripped the potential returns the spin-off would bring, hence the shelving of the project.
RBS still holds hopes to sell Williams & Glyn's branches and assets, stating that: "Work has continued to explore alternative means to achieve separation and divestment and RBS has had positive discussions with a number of interested parties [...] These discussions are at a preliminary stage and may or may not lead to a viable transaction."
Back in April the bank announced that "there was a significant risk that the separation and divestment of Williams & Glyn would not be achieved by 31 December 2017", a deadline it committed to the European Commission following its £45 billion bailout in 2008.
The time and cost related to this project highlights the difficulty the big banks face when it comes to untangling their legacy IT systems after years of new systems and acquisitions have been bolted onto the bloated tech infrastructure.
The alternatives now both look tricky. RBS could either take the approach TSB took when it was sold off by Lloyds. This would see the new bank continuing to use RBS' systems on what essentially amounts to a rental agreement. Otherwise RBS would have to look at only selling to a bank with similar systems to ease the migration, which may not be realistic.