Government injects £25.5bn into RBS

3rd Nov 2009 07:03

Royal Bank of Scotland will curb bonuses, not pay dividends for the next two years and sell its insurance arm and a raft of other businesses as the cost of joining the UK government's asset protection scheme(APS).To comply with EU State Aid requirements, RBS has agreed to divest the RBS branch network in England and Wales, the old Williams and Glyn's, and the NatWest branches in Scotland and Direct SME customers across the UK.RBS Insurance, Global Merchant Services and RBS's interest in RBS Sempra Commodities, all of which occupy leading positions in their markets, are also to be sold, the bank said. RBS will also not pay investors any dividends or coupons on existing hybrid capital instruments for two years, while employees earning above £39,000 will not get a cash bonus for 2009.The new deal will see RBS cut the amount of bad loans it intends to put into the APS scheme from £325bn to £282bn, but will have to take more of any potential losses onto its book. It is now liable for the first £60bn of losses, up from a previously announced £42.2bn, with the taxpayer picking up the tab for 90% after that.The government is also injecting upfront £25.5bn in new capital through the issue of B Shares, which will include £6.5bn in fees for the APS scheme reflecting an annual charge of £700m in 2009-2011 dropping to £500m thereafter. As a result the government's stake in RBS will rise to 84%, though its voting stake will stay at 70%.RBS has also received a commitment from HM Treasury to subscribe for up to an additional £8bn of B shares at £0.50 per share in the event that its Core Tier 1 Ratio falls below 5%."We are now more confident that we will be able to navigate the years ahead without recourse to claims under APS but the decision to participate is necessary to meet the FSA framework and will give us the stability we need to deliver our strategic plan," chief executive Stephen Hester said.