December 8, 2009

RBS finalises Asset Protection Scheme agreement

by Gill Montia

Story link: RBS finalises Asset Protection Scheme agreement

The Treasury has published details of its final agreement with Royal Bank of Scotland (RBS) regarding the bank’s participation in the Asset Protection Scheme (APS).

Ministers say the agreement gives the taxpayer a “much-improved position” compared to the initial deal announced in February.

The final terms of the agreement, which effectively leave the bank 84% state-owned, are:

An increased first loss of £60 billion (including impairments already identified by RBS) to be borne by RBS.

A reduced asset pool of £282 billion based on RBS’s balance sheet as of 31 December 2008.

An up-front capital injection of £25.5 billion.

An annual fee of £0.7 billion for the first three years and £0.5 billion thereafter.

A potential exit fee, if RBS should leave the APS, of the larger of £2.5 billion or 10% of the actual capital relief provided by the APS less any annual fees already paid.

Removal of the undertaking, agreed by RBS in February, to forego for up to five years certain tax losses and allowances – this was estimated at a value of between £9 billion and £11 billion in RBS’s accounts.

In addition, the Government will provide a contingent capital commitment of £8 billion, only to be drawn down if RBS’s capital position should deteriorate sufficiently.

In return for the capital it is providing, including this contingent capital, the Government will receive a fee of 4% per year calculated on the basis of the unused capital commitment.

The bank will also pay the full operational costs of the Asset Protection Agency, which is being set up to protect taxpayers’ interests.

The agreement is subject to shareholder approval and State Aid approval from the European Commission.