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RBS Exits Government Asset Protection Scheme

By Maynard Paton - Updated Apr 7, 2017 at 12:19PM

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RBS shares rally as it confirms a further step toward a recovery.

LONDON -- The shares of Royal Bank of Scotland (LSE: RBS.L) (NYSE: RBS) gained 4 pence to 284 pence in early trade this morning after the bank announced its exit from the U.K. government's asset protection scheme.

The FTSE 100 (UKX) member confirmed the exit would occur tomorrow and at the "earliest date consistent with the [scheme's] minimum contractual fee." 

The asset protection scheme, or APS, was the facility through which the Treasury provided "backstop credit insurance" to RBS to underpin a portfolio of the bank's assets and derivatives. The company said today the APS "played an important role in stabilising the market's perceptions of RBS after the impact of the financial crisis became clearer."

RBS outlined its intention to participate in the APS during February 2009, when the government agreed to insure some 282 billion pounds of assets. The bank has paid 2.5 billion pounds to participate in the scheme, in addition to the 1.5 billion pounds paid to the Treasury for financial support during the depths of the banking crash.

RBS claimed this morning its balance sheet had since transformed from one that had become "dangerously large and unstable" into one that is "more conservative, resilient and sustainable." During the bank's participation in the scheme, assets under protection fell by 63% to 105 billion pounds.

Stephen Hester, the chief executive of RBS, said today:

We all want a system in which banks will never again need to seek credit support from Government in a financial crisis. Huge progress has been made toward that goal and our exiting the APS is a significant milestone in RBS's recovery.

The APS has played a valuable role, buying time for the Bank as we implemented change from the worrying days of 2009 to create the much stronger institution it is today. RBS's capital, liquidity, and funding positions have been transformed in the past three years, so the time is now right for us to exit this scheme.

Today's APS news comes during a busy week for RBS. On Monday, the bank confirmed that its plan to sell 316 branches to Santander had been scrapped, while on Tuesday the group's Direct Line subsidiary was floated at 175 pence per share.

Today's news about the asset protection scheme suggests RBS may have taken a further step toward a recovery. However, the wider banking industry is not out of the woods just yet, with EU reforms, boardroom bonuses, and political/regulatory interference all capable of interfering with returns from here.

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Maynard does not own any share mentioned in this article.

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