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UK’s public money-backed Royal Bank of Scotland (LSE:RBS) is to exit the British Government’s version of an insurance program specifically for financial institutions, three years after the bank agreed to be protected against future credit losses during the wake of the financial crisis.
RBS, the only British bank that sought this protection after Lloyds Banking Group (LSE:LLOY) decided it doesn’t need further protection from the UK taxpayers, will leave the Asset Protection Scheme set up by the government in 2009 after the bank was able to reduce its exposure to risky assets by about 63% to about £105 billion.
The Asset Protection Scheme originally insured £282 billion worth of RBS assets, including:
Residential Mortgages £15.4
Consumer Finance £54.5
Commercial Real Estate Finance £39.9
Leveraged Finance £27.7
Lease Finance £2.4
Project Finance £2.2
Structured Finance £19.2
Loans £80.0
Bonds £1.6
Derivatives £39.9
Total £282.0
A fee of £2.5 billion, less whatever fees the bank have already paid, will have been collected from RBS after leaving the scheme.
Significant Milestone
“The Bank’s exit from the APS demonstrates the progress RBS has made in transforming a balance sheet that had become dangerously large and unstable into one that is more conservative, resilient, and sustainable,” RBS said in a statement.
Chief Executive Stephen Hester called the move “a significant milestone in RBS’s recovery” hinting the banks should never again need support from governments even in times of financial crisis.
Nonetheless, the CEO acknowledged the role the APS played “buying time for the Bank” to turn itself around from the “worrying days of 2009 to create a much stronger institution as it is today”.
Two weeks ago, the European Banking Authority (EBA) and the Financial Services Authority (FSA) said RBS exceeded the 9% Core Tier 1 ratio, recording 11.1% core tier 1 ratio equivalent to £48.155 billion for the over £434.681 billion worth of assets the bank holds.
“There is much work still underway. But RBS and all who rely on us are better off for the strong progress already made,” Mr. Hester closed.
Shares of RBS gained 1.7% to 284.7 pence by 1:30 PM GMT, following the news.
