Brussels, 10/04/2014 (Agence Europe) - On Thursday 10 April, the European Commission gave the go-ahead under EU state aid rules to planned amendments to the restructuring plan of Royal Bank of Scotland (RBS), which has received more than £25 billion sterling in state aid.
The Commission found that a delay of the divestment of RBS UK SME bank entity Rainbow will not jeopardise the viability of the business, although Competition Commissioner Joaquín Almunia says: “Establishing Rainbow as a stand-alone market player is key to increasing competition in the UK market for banking services to SMEs”. After three years of unsuccessful negotiations with potential purchasers, RBS had to modify its plans and establish Rainbow as a stand-alone bank. This meant that RBS was unable to respect the committed deadline of end December 2013.
The Commission also approved changes to the terms of the priority dividend received by the UK. The changes endorsed today better align the incentives of RBS with those of the UK without resulting in lower dividends as compared to what RBS could realistically be expected to pay under the existing terms.
The 2009 restructuring plan provided that RBS should pay a priority dividend (Dividend Access Share - DAS) to the UK state before paying any dividends on shares. However, expectations that RBS would return to significant profit as of 2011 have not materialised and no payments have been made under the DAS. Looking to the future, the previous terms of the DAS, and RBS' lower than expected profitability, would probably have discouraged dividend payments and encouraged capital retention. To address this situation, under the amended terms, the DAS is replaced by a fixed dividend amount, which RBS will pay to HM Treasury. The Commission considers that a private investor would have accepted such changes and that they confer no advantage to RBS. The Commission therefore concluded that the amendments to the terms of the DAS involve no additional state aid to RBS. (MB)