RBS rises on exiting government insurance scheme

The Royal Bank of Scotland rose two per cent on Wednesday after announcing it was leaving the government insurance scheme set up to protect it from collapse during the financial crisis.

The Royal Bank of Scotland rose two per cent on Wednesday after announcing it was leaving the government insurance scheme set up to protect it from collapse during the financial crisis.

Analysts at Credit Suisse said the move out of the Asset Protection Scheme (APS) was seen as as a positive step towards a more sustainable balance sheet.

"We expect the stock to react well especially given the fact that it has been a laggard, down 2% relative to the sector and down 6% relative to other UK banks in the last month," they said in a note on Wednesday.

RBS is currently 82%-owned by the UK taxpayer after receiving a £45bn bailout in 2008.

It was forced to put £282bn of assets into the APS in November 2009, which then acted as a backstop to the bank's most risky assets.

Those assets had since fallen to around £105bn, the bank said, with many being sold or written off.

The bank said exiting the scheme showed "the progress RBS has made in transforming a balance sheet that had become dangerously large and unstable into one that is more conservative, resilient, and sustainable".

It will formally leave the scheme on Thursday.

Chintan Joshi at Nomura highlighted that financial watchdog the FSA had attached no conditions to the exit.

"The current economic climate where the FSA has gone easy on capital has helped RBS to avoid any strings, which is better than what the market was expecting until recently," she said.

"There was an expectation that RBS may be forced to take come capital measures such as issuing contingent convertible bonds."

RBS said it had paid £2.5bn for its participation in the APS, without having made a claim, in addition to around £1.5bn it paid to the Treasury for liquidity support received during the financial crisis.

It said the scheme had played an important role in stabilising market perceptions of RBS, giving the bank's new board and management time to put a recovery plan into effect.

In February 2009 the bank's shares had fallen to an all-time low of 10p as panic swept markets.

Group Chief Executive Stephen Hester said "huge progress" had been made towards creating a system in which banks would never again need to seek credit support from government in a financial crisis.

"RBS's capital, liquidity, and funding positions have been transformed in the past three years, so the time is now right for us to exit this scheme," he said.

Lloyds Banking Group paid £2.5bn to exit the scheme in November 2009 and instead raised additional capital from shareholders.

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