RBS to dish out dosh to preference shareholders

State-owned Royal Bank of Scotland (RBS) is looking to resume dividend payments to holders of its preference shareholders to signal its progress on the road to financial stability.

"Paying a dividend is good market behaviour and is an important signal to debt holders and equity holders," an RBS source told the Daily Telegraph.

According to the newspaper, no decision has been made on the £350m to £400m payment which, in any case, would need to be approved by both the government and the Financial Services Authority.

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Under European Union regulations, RBS, because it has received state aid, has not been able to pay any dividends, but that restriction runs out at the end of April.

As the name suggests, holders of preference shares get priority over holders of ordinary shareholders when it comes to distribution of company funds, so RBS would not be allowed to resume dividend payments to ordinary shareholders until it has resumed payments to preference shareholders.

There has been speculation recently that the government is trying to get the Abu Dhabi sovereign wealth fund interested in buying a chunk of shares in the bank, which had to be rescued by the UK tax payer at the onset of the credit crunch. According to the Telegraph, however, other institutional investors are interested in buying a stake in the company once the government is ready to cash in its chips.

"Institutions which have a long-term relationship with the bank don't want to be shut out of any deal to sell down a stake," one insider told the newspaper. "They want to be shown an offer, which could mean being part of a group of cornerstone investors alongside a foreign investor."

JH