Earlier this week, the European Commission disclosed that it has undertaken an investigation related to the proposal provided by the U.K. government. The proposal requires Royal Bank of Scotland to spend around $953 million (750 million pounds) in a fund committed to boost competition in the U.K. banking market.

In 2008, the bank received an aid of about $56.75 billion (45.5 billion pounds) from the government because of the financial crisis. In return, the bank was ordered to sell its Williams and Glyn (W&G) business division by the end of 2017.

The bank reported to have incurred almost $2.25 billion (1.8 billion pounds) in its attempts to sell off the branches. In 2012, Royal Bank was in talks with the Spanish bank Santander, but the deal failed due to IT issues and a failure to agree on a price. Further, the bank had come up with a plan of listing W&G in the stock market. However, it was declared unworkable by Royal Bank.

Of late, the government seems to have acknowledged the banks’ efforts to divest W&G. Thus it has come up with a second plan which will aid in boosting competition. Per the alternative proposed by the government, the fund will be used to cater to the needs of the small and medium sized enterprises (SMEs) that are becoming challenger banks (relatively small retail banks established to compete with large and long-established institutions). Also, Royal Bank will have to grant the challenger banks’ customers access to its branch networks and fund a new fintech investment.

The government decided to perform a “market testing” and seek the opinions of the challenger banks that include SME banking groups, and fintech and venture capital firms. The alternative would be accepted only if it is weighed equal to the previous plan.

With this alternative, we can expect to see some improvement in the competition in the U.K. banking market. However, the Royal Bank will be hit by another huge expenditure.

Shares of Royal Bank gained 29.8% in the last six months, outperforming the 15.8% increase for the Zacks categorized Banks - Foreign industry.



Currently, Royal Bank carries a Zacks Rank #3 (Hold).

Some better-ranked finance stocks include Bank of Montreal (BMO Quick QuoteBMO - Free Report) , KB Financial Group Inc. (KB Quick QuoteKB - Free Report) and BGC Partners, Inc. . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bank of Montreal witnessed an upward earnings estimate revision of 4.6% for the current year, in the past 60 days. Its share price gained 26.0%, over the past one year.

KB Financial’s earnings estimates were revised upward by a solid 7.4% for the current year, in the past 30 days. Also, its share price increased 54.7%, over the last one year.

BGC Partners’ earnings estimates were revised 5.3% upward over the last 30 days. Further, its shares jumped 23.4% in the last one year.

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