By Margot Patrick
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- Royal Bank of Scotland Group PLC (RBS) Tuesday said it will spin off its insurance arm and sell RBS branches in England and Wales as part of a European Union-agreed restructuring plan that includes a GBP25.5 billion capital injection from the U.K. government.
RBS said it will also enter a government insurance program, called the asset-protection scheme, to insure a GBP282 billion of loans and investments against any losses over an initial GBP60 billion that would be borne by RBS.
The details of the plan had been widely reported Monday, and come a year after the government invested GBP20 billion into RBS to help keep it lending to businesses and home buyers and make it through the then-deepening financial crisis. Part state-owned peer Lloyds Banking Group PLC (LYG) also announced a capital-raising and changes to its business Tuesday, but it won't be significantly increasing its reliance on the government.
The dramatic reshaping of RBS to ensure its viability and to meet European Union guidelines on state aid will see the bank over the next four years sell off its insurance arm--probably through an initial public offering--and divest parts of its U.K. branch and corporate business, its global merchant services unit and its interest in commodities trading division RBS Sempra Commodities.
"I believe today marks a key milestone in the radical restructuring we are undertaking to bring RBS back to standalone strength. The agreement in principle reached with the (European Commission) is clearly more material for the structure of our group than we had hoped, increasing risk to both execution of the plan and earnings dilution," RBS Chief Executive Stephen Hester said in a statement.
But he said it is still an "acceptable result" and that the bank's essential strengths remain intact.
To improve its capital position and to serve as a buffer against potential credit losses, RBS will issue GBP25.5 billion in new shares to the government, taking the state's stake to 84.4%, from 70%. The government's voting rights will remain at 70%.
The government has also agreed to subscribe to up to GBP8 billion in further shares, serving as contingent capital if RBS core Tier 1 ratio falls below 5%.
Company Web site: http://www.rbs.com
-By Margot Patrick, Dow Jones Newswires; +44 (0)20 7842 9451; margot.patrick@dowjones.com