RBS May Be Able to Leave U.K. Asset Plan Early, Person Says

RBS May Be Able to Leave U.K. Asset Plan Early, Person Says


Oct. 31 (Bloomberg) -- Royal Bank of Scotland Group Plc may reach an agreement enabling it to exit a U.K. government program that would insure its risky assets earlier than predicted, a person familiar with the situation said.

The bank may no longer have to make an upfront 17.5 billion-pound ($29 billion) outlay to join the government’s Asset Protection Scheme, instead being allowed to pay for participation annually and agreeing to absord a bigger first loss than earlier decided, said the person, who declined to be identified because the talks are continuing. Edinburgh- based Royal Bank will insure as much as 280 billion pounds of risky assets through the program.

RBS, 70 percent of which is owned by the government, is trying to get back on its feet after posting the biggest loss in British corporate history during the credit crunch. The company may be forced by the European Union to sell its insurance unit, 300 branches and some investment-banking assets to win approval for its plans.

“Participation in the APS is necessary in order to provide a stable framework within which a long and uncertain disposal or run-off program can be efficiently managed,” Ian Gordon, an analyst at Exane BNP Paribas in London, wrote in a note to investors yesterday. Gordon has an “underperform” rating on the stock.

A final decision on the terms of the asset-insurance plan hasn’t been reached, the person said, adding that RBS may agree to absorb a higher first loss under the program than the almost 43 billion pounds, including 23 billion pounds of writedowns since the credit crunch, that was originally made part of the deal. Even with the new agreement, the bank will probably take more than a year to exit the plan, the person said.

‘Poor’ Performance

RBS, which had a 20 billion-pound capital injection last year, posted a loss of 24 billion pounds in 2008. Its financial performance will be “poor” for another two years, Chief Executive Officer Stephen Hester said in August.

Hester previously abandoned plans to sell the insurance unit, which includes the Direct Line, Churchill and Green Flag brands, after failing to agree on a price with potential buyers in January.

The Financial Times reported the new terms earlier today. Officials at RBS declined to comment.

bloomberg