So we now have details of the businesses RBS is going to offload to please Brussels, and the revised terms for its involvement in the UK Asset Protection Scheme. Overall, the divestments appear to be very much in line with what the media had been anticipating:
Restructuring Plan also now agreed in principle with the European Commission, subject to approval by the EU College of Commissioners (the “College”). Inter alia, this includes divestment by RBS within the next 4 years of parts of its UK branch and corporate business, RBS Insurance, Global Merchant Services and its interest in RBS Sempra Commodities.
And some more detail:
To comply with EC State Aid requirements RBS has agreed, in principle and subject to approval by the College, a series of restructuring measures to be implemented over a four year period. These will supplement the measures in the Strategic Plan already announced by RBS.
* RBS to divest the RBS branch network in England and Wales and the NatWest branches in Scotland and Direct SME customers across the UK.
* RBS to divest RBS Insurance, Global Merchant Services and RBS’s interest in RBS Sempra Commodities, all of which occupy leading positions in their markets.
* Divestments will be timed to maximise value and may be effected through initial public offerings, agreed sales or a combination of these. In particular, RBS Insurance is seen as a potential IPO in the later years of RBS’s Strategic Plan.
* Should the RBS Core Tier 1 Capital ratio decline to below 5% at any time before 30 November 2014 and the Contingent Capital of up to £8bn is triggered, or should RBS fall short of its existing funded balance sheet reduction targets for 31 December 2013 by 10% or more, HM Treasury has agreed in principle with the EC that RBS will reduce risk-weighted assets (”RWAs”) by a further £60bn in excess of plan through further disposals of assets or businesses.
* Behavioural commitments include that RBS will rank no higher than number 5 in the combined all debt league tables globally for 3 years.
* Requirement that RBS shall not pay investors any dividends or coupons on existing hybrid capital instruments (including preference shares and B Shares) or exercise any call rights in respect of such existing securities for a two year period unless there is a legal obligation to do so. The extent and timing of this obligation and the securities which it will impact is subject to further discussion between RBS, HM Treasury and the EC.
* Agreement reached in principle subject to final EC approval by the College.
So, RBS Insurance could be IPO-ed when conditions are optimal.
And while we don’t have the latest quarterly figures for the businesses that are set to be spun off — presumably to be released on Friday with the bank’s interim statement — RBS does via its latest statement offer us some insight into the sort of profit margins being generated at the businesses (not broken down to our knowledge in the group’s previous income statements).
Here for example is the breakdown of their income statement, showing among other things that their JV with Sempra Commodities, which delivered income of £454m in the six months to June 30, 2009, actually reported an operating profit for RBS of £62m:
Here, meanwhile, is the table showing the divisions’ balance sheet dimensions including risk weighted assets, total assets and estimated capital in the case of RBS Insurance as they were on June 30,2009:
And a table showing the estimated forecast risk weighted assets, total assets, loans and deposits as at December 31 of RBS’ retail markets and UK corporate businesses identified for reduction:
Related links:
Snap news extra - Lloyds and RBS announcements - FT Alphaville
