RBS shareholders back asset protection scheme

Dec 16 2009 by Iain Laing, The Journal

PLANS to prop up part-nationalised Royal Bank of Scotland (RBS) have been overwhelmingly backed by shareholders with 99% voting to allow the bank to join the Government’s asset protection scheme.

The Treasury-backed scheme will act as a large insurance policy for the bank’s £282bn in bad debts.

The Treasury is pumping an extra £25.5bn into the bank under the proposals – with a further £8bn ready if needed – taking its stake to 84%.

The vote followed a meeting in Edinburgh in which chairman Philip Hampton said the measures were designed to equip RBS to deal with the “headwinds” it faces over the coming years, but also with the “risks that events might turn out significantly worse than we currently forecast”.

Sir Philip warned that there were no alternative capital measures available to the ailing bank, which lost a UK record £24.1bn last year.

“Bluntly, without these measures RBS would be at risk of full nationalisation, and in that event independent shareholders could very well lose most or all of the value in their shares,” he said.

The meeting came a day after the latest bail-out proposals were approved by European competition officials in return for major sell-offs by the bank.

The European Commission has demanded the sale of RBS’s Churchill and Direct Line insurance arm and parts of its investment banking business under a wide-ranging restructuring programme in return for the extensive state support.

RBS is also selling 318 branches of the former Williams & Glyn’s outlets in England and Wales and its NatWest branches in Scotland.

These represent 14% of its UK network and will cut its retail market share by 2%. Its share of the small business banking market will fall by 5%.

Sir Philip told the meeting at the bank’s Gogarburn headquarters yesterday: “It is possible that we may look back in years to come and, if the severe outcomes against which we have obtained protection have not come to pass, feel that the price was too great.

“Today, however, it is the board’s view that the costs of this transaction are commensurate with the substantial risk protection provided to your group.”

He also told shareholders: “Since February, the economic environment has become less harsh, and the probability of the downturn continuing much longer now appears lower than it seemed then.

“But these measures are designed to equip RBS to deal not just with the headwinds we know we face over the coming years, but also with the risks that events might turn out significantly worse than we currently forecast – if, for example, economic conditions were to turn sharply downwards again.”

During his speech, the chairman also denied that the board had threatened to resign in a row with the Government over bonuses.