George Osborne prepares to relaunch Royal Bank of Scotland RBS chief executive Ross McEwan George Osborne is preparing to relaunch Royal Bank of Scotland this week with reforms that include splitting off billions of pounds of risky loans, as he tries to reposition the part-nationalised lender. The overhaul of RBS, which follows a four-month review by Rothschild, the investment bank, and BlackRock, the world's biggest asset manager, is set to be announced before, or alongside, the bank's third-quarter results on Friday. Analysts expect these results - the first for new chief executive Ross McEwan, to show a return to profit. The shake-up comes as Mr McEwan prepares to frame his broad vision for turning round RBS before he unveils a more detailed plan due in February. It is likely to include measures to free up capital for the bank - bringing forward its planned sale of the US arm, Citizens and more cuts to its investment banking division, for example - to support an accelerated rundown of the bad loans. The aim is to make it easier for RBS to lend by unshackling it from the tens of billions of pounds of risky loans that clog up its balance sheet. For Mr Osborne, it is about presenting the remodelled RBS as a "new" bank, drawing a line under its recent past and preparing it for reprivatisation. The chancellor has considered options, ranging from a full-blown carve-out of the bank's unwanted assets to a more modest internally managed bad bank. Below we look at the options and their advantages and disadvantages. Internal bad bank Mr Osborne is widely expected to opt for an internally managed bad bank rather than a more dramatic full-blown break-up. This would involve expanding and reshaping RBS's existing non-core division - but keeping it within the bank. Analysts believe the non-core division, which housed almost £260bn of potentially toxic assets in 2009 but now has just £40bn, could be enlarged and given its own brand and management team, in an echo of the structure adopted for the rescue of US bank Citigroup in 2009. The enlarged non-core division would probably take in an extra £15bn-£20bn of assets, mainly Irish real estate loans from Ulster Bank and riskier UK commercial property loans. Pros: This would be a relatively straightforward restructuring, and would not have to be formally approved by minority investors, so it could be done much faster than a more formal split. That would pave the way for the reprivatisation of RBS to begin more quickly. It would mean that the lender would not have to transfer the non-core assets off its books and so would avoid crystallising losses on the loans. The bank would benefit from any further recovery in the value of the assets. Also, having experienced bankers manage the wind-down should maximise the value of the assets. Cons: Keeping the non-core assets within RBS would make it harder for the new chief executive to present a cleaned-up bank. In turn, bankers say that could make it harder to convince new investors to buy into RBS - at least until the rundown was making progress. An internal bad bank would largely be viewed as a cosmetic change, potentially undermining the government's efforts to overhaul the bank. Full-blown separation This more extreme option would see RBS's riskiest assets carved out of the bank and taken into state ownership. The chancellor has made clear that the government will not pump any more money into the bank, so any such transfer would have to be capitalised by the lender. Investors have urged Mr Osborne not to press ahead with this kind of formal split, which they say would destroy value in the bank and delay its return to private ownership. Pros: Stripping RBS of its toxic assets entirely would be a more effective way to clean up the bank. Bankers say it would remove a big distraction for the new management team, enabling them to focus on growing the core business and increasing lending. The bank's capital position would also become more transparent. These factors could help create a more compelling investment story for the government, making it easier to attract new shareholders and start selling its 81 per cent stake. RBS would receive upfront cash for the assets, while taxpayers would benefit if the value of the loans improved. Cons: This kind of split would be more complex and time-consuming than an internal restructuring. Bankers estimate that it would take at least 12-24 months to implement, making it unlikely that the reprivatisation could begin before then. Investors have signalled that they would oppose such a move because losses on the assets would be crystallised as they would be repriced to reflect the current, lower, market values. Analysts say these losses could top £15bn. Central bank support Another option that has been discussed by officials is to split out RBS's unwanted assets and buttress them with funding from the Bank of England. A similar structure was created for UBS after the financial crisis, with support from the Swiss National Bank. However, it is understood that this idea was quickly dismissed by the Bank of England, and the Treasury. Pros: Such a move would have rid RBS of the problem loans without costing it capital. It would have provided greater protection against souring loans, potentially strengthening the perception of the bank to investors. Cons: Involving the Bank of England would have made the transaction more complex. Also, the central bank is not set up to act as a backstop for bank loans over the long term. Additional reporting by George Parker