UK Govt: RBS Insurance Plan May Trigger Small Payout In 2015

22nd Jul 2010 11:54

By Patricia Kowsmann Of DOW JONES NEWSWIRES LONDON (Dow Jones)--The U.K. government said Thursday that it might have to pay out "a relatively small amount" to 83%-state owned Royal Bank of Scotland Group PLC (RBS) in 2015 under an insurance scheme to protect the bank from loan and investment losses. Under the so-called Asset Protection Scheme, the government agreed to insure GBP282 billion of loans and investments over an initial loss of GBP60 billion that will be borne by RBS. RBS entered the program late last year, and it now covers about GBP230.9 billion in loans and investments after some of the assets matured and taking the effect of currency moves into account. In its annual report, the U.K. Asset Protection Agency said at its "best estimate" as at June 30, net losses will exceed the GBP60 billion between the fourth quarter of 2012 and the first quarter of 2015. "There is a reasonable chance that Treasury will temporarily have to pay out a relatively small amount in 2015, which will subsequently be recovered in full, including accrued interest, leading to HMT experiencing zero losses," it said in the report. Overall and along the lifetime of the program, which ends in 2099, net losses on the covered assets won't exceed the GBP60 billion, it added. RBS representatives weren't immediate available to comment. The bank has the right to leave the scheme at any time, as long as the U.K. Financial Services Authority approves the move. In the event of an exit, RBS would pay a termination fee of GBP2.5 billion, minus the aggregate fees already paid to use it. RBS paid an initial premium of GBP1.4 billion to enter the program and is due to pay GBP700 million to cover its costs in 2011 and GBP500 million for any year after that, if the plan is still in place. The bank is the largest bank recipient of government aid in the world, having received GBP45.5 billion from the U.K. Its business fell into disarray last year when the financial crisis intensified and revealed deep problems in the ABN Amro businesses it had acquired in an ill-timed acquisition, late in 2007. In the report, the Asset Protection Agency also said it has "expressed concern over the quality of credit memos and financial analysis received from RBS." The agency is in talks with RBS over the issues, it added. -By Patricia Kowsmann, Dow Jones Newswires. Tel +44(0)207-842-9295, [email protected] (END) Dow Jones Newswires July 22, 2010 06:54 ET (10:54 GMT)