UK Gov’t publishes update on RBS’s remaining #StateAid obligations

A plan to resolve RBS’ final State aid commitment, worth approximately £835 million, has been agreed in principle between the UK Government and Commissioner Mme Vestager of the EU Commission.

It will see RBS fund and deliver a package of measures to improve the UK business banking market and is designed to boost competition, helping small and medium sized enterprises (SMEs) benefit from greater choice and offers on banking services.

The measures will also help address potential distortions in the UK business banking market that resulted from state support for RBS.

Following market testing and responses to the Commission’s consultation, the government enhanced the package of measures announced in February this year to make sure that it delivers its pro-competitive objectives and is equivalent to the divestment of Williams & Glyn, as mandated in 2009.

The revised package consolidates the previously announced remedies into two enhanced measures:

  • a £425 million Capability & Innovation Fund, administered by an independent body, comprised of 15 grants that eligible challenger banks and other financial services providers can compete for to increase their business banking capabilities. These awards will range from £5 million to £120 million.

 

  • £350 million of funding to incentivise SMEs to switch their accounts from the business previously described as Williams & Glyn to eligible challengers, comprised of £225 million paid in the form of “dowries” to challengers to use to incentivise SMEs to switch their business current accounts, £50 million to facilitate the switching of related loans, and £75 million set aside by RBS to cover customers’ switching costs.

RBS will also fund c. £60 million of additional implementation and other costs.

On this basis and subject to the support of the College of Commissioners, the Commission will adopt its formal decision under EU State aid rules in autumn 2017, a decision point that may mark the beginning of the end of this decade long State Aid imbriglio.

RBS is one of Europe’s largest financial services groups and had a balance sheet of £799 billion at the end of 2016. During the financial crisis, in late 2008, RBS was on the verge of collapse and has benefitted from the following state aid measures:

  • a recapitalisation of £45.5bn and an (eventually unused) five year contingent recapitalisation of £8bn
  • an impaired asset measure covering excess loss (which was terminated with RBS not having received any payments from the State, but instead paid a cumulative fee of £2.5bn for the participation) and
  • guarantees and other liquidity measures (now fully repaid).

These aid measures resulted in the nationalisation of RBS (the UK Government currently holds 71.3% of RBS shares) and were accompanied by the restructuring of RBS approved by the Commission in 2009 and amended in 2014.

As part of this restructuring, the UK committed RBS would undertake a significant balance sheet and risk reduction. RBS has already delivered on those commitments to ensure the bank’s long-term viability, in line with the Commission decision.

It also delivered on all its other divestment commitments (sale of RBS insurance, transaction business, commodity trading, US banking subsidiary), which were made to ensure adequate own contribution by the bank to the financing of the restructuring of the core UK banking operations and to limit the distortion of competition.

The divestment of Williams & Glyn, to be completed by end-2017 is the last outstanding commitment, with the objective to mitigate the distortion of competition in the UK SME banking market.