The European Commission (EC) has approved under EU state aid rules the impaired asset relief measure and the restructuring plan of Royal Bank of Scotland (RBS). EC considered that the proposed measures would ensure RBS’ return to long term viability. The commitment to exit all non-core and riskier business lines will contribute to reinforcing its capital and liquidity position. The bank’s participation in the asset protection scheme (APS) will cap the impact of a further impairment of the riskier assets on the bank’s capital position and help to restore market confidence in the bank.
EC found that the level of first losses borne by RBS under the APS and the remuneration charged by the state for its different interventions would ensure, together with the restructuring plan, a fair burden-sharing of past losses and an adequate contribution of the bank and its capital providers to the financing of the restructuring costs.
The restructuring plan provides for a number of business divestments including RBS’ 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 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. The divested entity will have a 5% 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 on the market and will therefore stimulate competition.
Neelie Kroes, commissioner of EU competition, 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 to 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.”
