RBS seeks private fix for its funding


Royal Bank of Scotland is considering whether it can negotiate a partial withdrawal from the government's Asset Protection Scheme.

The bank wonders whether it can follow in the footsteps of rival Lloyds Banking Group and lower its costs by finding a solution in the private sector which would not require it to put so many toxic loans into the APS.

An improvement in stock markets and a bounce back in bank shares has raised the possibility that the government-controlled banks could raise capital in the equity markets.

RBS shares have soared this year after hitting a low of 10.3p after a profit warning in January. They closed up 0.65p at 55.65p yesterday.

However RBS, which is 70% owned by the taxpayer compared with 43%-owned Lloyds, still believes that the APS is necessary to provide an insurance scheme against the majority of its toxic loans.

'All we are saying is that it is worth exploring to see whether there are some other options out there,' said a source close to the bank. 'We still think we will have to do the APS, but there could be a way of renegotiating the deal to lower our costs or raise funds elsewhere.'

Under the initial APS agreement, RBS proposed to put £317bn of loans into the scheme for a fee of £19.5bn, which would be financed by the government increasing its stake from 70% to 82.5%.

RBS is in a slightly stickier position than Lloyds as its chief executive Stephen Hester believes that the bank could have worse to come in terms of bad debts.

With its first-half results in August, he warned that RBS is in for a tough few years. Lloyds chief Eric Daniels is being far more optimistic and thinks impairments have peaked.

Lloyds has already made strides towards convincing the Financial Services Authority and the government that it is strong enough to embark on a multi-billion-pound rights issue.

RBS's Hester is still inclined to stick with the APS, but will seek advice on whether there are any other options open to the bank. ˜Investors holding £1bn of RBS bonds were dealt a blow yesterday, after the bank said it would not take up the option to pay them off this October.

The European Commission has said that equity and bond holders should share the pain from banks which have received a state handout, and it does not want RBS to use taxpayer funds to pay bondholders.

Four types of bond paying annual interest rates of around 6%-7% will not be redeemed at the moment. The value of the first one fell from around 87p in the pound to 70p.

RBS seeks private fix for its funding

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