Royal Bank of Scotland Group plc (RBS, RBS.L), or RBSG, the parent of The Royal Bank of Scotland plc, or RBS, said Friday that the company, along with RBS, signed an accession agreement to the UK Government's Asset Protection Scheme, or APS, on Thursday. The company noted that, as revealed earlier in the month, it has agreed to issue GBP25.5 billion of new capital to the Commissioners of Her Majesty's Treasury, and also decided to stop coupon and dividend payments on certain hybrid capital instruments.
RBSG said today that in addition to the Accession Agreement, it signed an acquisition and contingent capital agreement agreeing to issue GBP25.5 billion of new capital to the Commissioners of Her Majesty's Treasury in the form of B shares and a dividend access share. HM Treasury has also committed to subscribe for up to an additional GBP8 billion of capital in the form of additional B shares in certain circumstances.
The terms of the agreement were announced on November 3. The company said in a statement then that it agreed to issue GBP25.5 billion of new capital to HM Treasury in the form of B Shares which are convertible into ordinary shares. The B Shares qualify as Core Tier 1 Capital.
The Accession Agreement is subject to certain conditions, including approval by RBSG's shareholders and final approval by the European Commission.
The acquisition and contingent capital agreement also is subject to various conditions, including the satisfaction or waiver of all conditions to RBSG's and RBS's participation in the APS, approval by RBSG's shareholders and final approval by the European Commission.
RBSG noted that on Thursday it also entered into a State Aid Commitment Deed with HM Treasury containing commitments and undertakings given by RBSG to HM Treasury. These are designed to ensure that HM Treasury is able to comply with the commitments to be given by it to the European Commission for the purposes of obtaining State aid approval.
As part of these commitments, RBSG has agreed that the company or any of its direct or indirect subsidiaries would not pay investors dividends or coupons on existing hybrid capital instruments during a deferral period, or exercise any call rights in relation to the same between November 24, 2009 and the end of the Deferral Period, unless legally required to do so. The deferral period will begin by April 30, 2010 and will run for two years thereafter. Hybrid capital instruments issued after November 24 shall generally not be subject to the restriction on dividend or coupon payments or call options.
Additionally, the hybrid capital instruments existing on November 24, which are retained in the future RBS Holdings N.V. group after separation is complete, will be subject to a restriction on the payment of dividends and coupons and on the exercise of any call rights for two years after the proposed capital restructuring of RFS Holdings B.V. and following the expiry of any "pusher" periods after separation and such capital restructuring.
RBSG had said on November 3 that it had agreed in principle with the EC that if it fell short of its funded balance sheet target level for December 31 , 2013 by 10% or more, the company would reduce Risk Weighted Assets by GBP60 billion through further disposals of assets or businesses. It has now been agreed that this reduction in Risk Weighted Assets would be required if RBSG falls short of this target by GBP30 billion or more.
RBSG is the worst-hit bank in the UK banking crisis. The Bank of England said in a statement to Parliament on Tuesday that it provided GBP62 billion emergency liquidity assistance to RBS and HBOS Plc last October to keep them floating. RBS borrowed GBP36.6 billion and HBOS borrowed GBP 25.4 billion. ''The RBS facility was repaid in full by 16 December 2008, and the HBOS facility by 16 January 2009,'' it said.
RBSG noted earlier this month that as part of the agreement, it would reduce its presence in the UK banking sector, which includes the disposal of the RBS branch-based business in England and Wales, the NatWest branches in Scotland, along with Direct SME customers across the UK. This will result in the disposal of 318 branches UK-wide, which is 14% of the Group's UK retail network, and the appropriate infrastructure to support this business. The bank is expected to cut about 4000 jobs across UK.
Lloyds Banking Group (LLOY.L), formed by the merger of Lloyds TSB and HBOS early this year, came close to being RBSG's peer in misery. It recently announced raising of GBP 21 billion of core capital and sale of 600 branches. The company is reportedly slashing 4,960 jobs in 2010.
RBS.L is currently trading at 32.16 pence, down 0.83 pence or 3.24%, on 53.26 million shares.
RBS closed regular trading on Wednesday at $12.03, down from the previous close of $12.15, on 147,800 shares.
For comments and feedback: editorial@rttnews.com