This has been one of the most complex cases of the financial crisis. The state will cover 90% of the losses arising from a £281bn asset portfolio. RBS will then pay a share of the restructuring costs. Divestments will include RBS insurance, transaction management and commodity trading operations.
Competition Commissioner Neelie Kroes said: "This case has been one of the most complex the Commission has had to deal with during the financial crisis. I am very pleased with the result. The Royal Bank of Scotland will take a number of significant steps to return to long term viability. RBS will itself pay a sufficient share of the restructuring costs and distortions of competition will be limited by substantial divestments. I wish a better and more sustainable future for this bank. But be aware that in case RBS does not deliver on its balance sheet reduction targets by 2013, the Commission will be able to intervene again and more divestments will be required".
Under a package of financial support measures approved by the Commission on 13 October 2008, RBS received a state recapitalisation of £20 billion (€22 billion), giving the state a 70 per cent stake in RBS. The approval of this recapitalisation was conditional upon the submission of a restructuring plan. This plan was submitted to the Commission on 2 June 2009 and contained additional state measures.
On 26 February 2009, the UK authorities and RBS announced that the bank would take part in the UK's Asset Protection Scheme (APS). The detailed terms of the APS and of the accompanying aid package for RBS were announced in November 2009: the state would cover 90 per cent of the losses to arise from a £281 billion (€309.1 billion) portfolio of assets. RBS would retain the first £60 billion (€66 billion) of losses and the residual 10 per cent of all further losses. The state would provide a second recapitalisation of £25.5 billion (€28.05 billion) and make a commitment to provide up to £8 billion (€8.8 billion) of additional capital if the bank's core tier one ratio were to fall below 5 per cent in the coming five years.
Divestments
The restructuring plan provides for a number of business divestments including RBS's insurance, transaction management and commodity trading operations. These sales are important to generate resources which will limit the need for further aid to finance the return to viability, but also to limit moral hazard (i.e. the danger that a company may take excessive risks if it considers that it will not have to pay for the consequences itself) and distortions of competition brought about by the aid.
In addition, the plan contains a divestment package in the UK SME and mid-corporate banking sector, which is a concentrated market where RBS is the leading bank. The divested entity will have a 5 per cent market share in the SME and mid-corporate banking market gained through more than 300 branches and 40 business and commercial centres. This will facilitate the entry of a new competitor or the reinforcement of a smaller existing competitor in the market and will therefore stimulate competition.
© European Commission
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