RBS agrees with UK government to cancel dividend block

10th Apr 2014 10:14

Royal Bank of Scotland (RBS) has agreed with the UK government to cancel a deal that blocked dividend payments to private shareholders.The state-backed lender will pay £1.5bn to end the so-called dividend access share, in a step towards privatisation. RBS said the agreement paves the way for the bank to begin paying dividends, which will make shares more appealing to private investors and may accelerate the timeline for the government to start reducing its 80% stake. "Today's agreement is a vote of confidence in the progress we have made in rebuilding RBS and in our plan for the bank's future," said Chief Executive Ross McEwan."We now need to get on with building an RBS that can earn the trust of our customers and help change UK banking for the better."The block on dividend payments to private investors was put in place in 2009 when the government made its second investment in the bank of £25.5bn.It meant the government would receive as much as 98.8% of dividends if paid. RBS has now received clearance from the European Commission to cancel the agreement.European Union (EU) regulators have also approved changes to the RBS restructuring plan made by British authorities to bring it in line with EU rules.The European Commission said a delay to the sale of the lender's British bank entity for small businesses Rainbow would not impact the viability of the firm."Establishing Rainbow as a standalone market player is key to increasing competition in the UK market for banking services to SMEs," EU Competition Chief Joaquin Almunia said, according to Reuters."The Commission has agreed to extend the deadline for divesting Rainbow because the UK authorities and RBS have proven their commitment to create and divest Rainbow as a solid standalone bank."Shares rose 0.26% to 310.60p at 10:43 on Thursday.RD