RBS withdraws from government 'risky asset' insurance

The Royal Bank of Scotland is edging closer to becoming a private company again as it drops out of the government's toxic asset insurance scheme.

by Michael Northcott
Last Updated: 19 Aug 2013

The government is getting closer to its goal of offloading RBS from state ownership, as today the bank left the Asset Protection Scheme. The scheme, which involves the government insuring the bank’s riskiest assets, was set up in 2009 and meant that the taxpayer had to foot the bill for any losses. But RBS has spent several years getting rid of half of the £280bn of loans and investments that it needed the insurance for in the first place. 

Under the APS, banks had to pay a yearly fee for their insurance, and were themselves liable for the first 10% of losses on the assets they lodged with the scheme. RBS has paid around £2.5bn in fees to use the scheme, which, as it happens, it hasn’t had to claim on. Its fees ran right up to this week, which means the bank is leaving the scheme at the earliest possible moment. With the government still owning 82% of the bank, however, we’re a long way from seeing the bank completely out of the grip of state support.

So when will the sale happen? Well, it’s not thought that the bank will be ready for a while yet. Treasury minister Sajid Javid told the BBC that the government is not planning to sell it off any time soon: ‘We’ve said all along that it’s our intention eventually to return it fully to the private sector and today’s news is a significant step towards that. But in terms of eventually selling our stake, that will be done with due regard to taxpayers’ interests. So we’ll continue to work on that, but that’s moiré of a longer-term nature.’

And what of the deal the taxpayer can eventually expect? That’s not as easy a situation. The bank was bailed out by the government back in 2008 at around 500p per share, meaning the current share price (287p) would need to almost double for the government to get its investment back. And that’s before the effect of inflation is taken into account. Still, given the state of the bank’s finances back in 2008, it was either a bailout or a complete collapse – we know which we’d prefer in the long term. 

The bank’s chief executive was quick to play up the benefit of having kept the bank afloat with the insurance scheme. He said in a statement: ‘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.’ APS has probably helped buy time for RBS to clean up its loan portfolio, and was probably worth it for that. But there’s still plenty of work to be done to get the bank into a saleable condition…

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