21st January 2011
Royal Bank of Scotland was once a UK stock market darling. Could it be so again? News that it might leave the Government's asset protection scheme, saw RBS shares surge ahead by 6 per cent reported here in the Mail and subsequently confirmed on the newswires .
The scheme is basically a means by which RBS insures itself against the assets becoming worthless or leaving it with a liability. RBS chose to cover £282bn of risky assets. If required RBS would have paid what was effectively an excess of £60bn with the UK Treasury then covering 90 per cent of any more losses.
The bank remains 84 per cent owned by the taxpayer. But exiting the Asset Protection Scheme could represent a first step to returning to full private ownership. The bank pays out huge fees to be a member of the scheme. It has paid £2.1bn to date and has only just recently paid the Government £700m to cover itself until the end of 2011. The insurance which was a much needed life line during the financial crisis may be starting to look onerous and expensive.
Analysts have reacted to the news well, as reported here on FT Alphaville , which also gives a useful breakdown of the assets concerned.
There was speculation that exiting the scheme could also allow RBS to float or sell off some of these assets into another entity.
Harry Wilson in the Telegraph pointed out that RBS was doing better than Barcap and suggested that some of this was because of its determined reorganisation and ringfencing of these assets.
Even before the latest news, whitevanman appeared convinced.
He wrote: "Time to stock up on cut price RBS shares then. A good investment for the future :)"