This Bank Frees Itself From An Expensive Safety Net
Sailing the winds of the financial crisis in 2009, Royal Bank of Scotland (NYSE:RBS) entered into the Asset Protection Scheme with the British government. The program insures some 282 billion pounds ($455 billion) in loans and derivatives, but the bank has never had to make a claim. RBS has paid 2.5 billion pounds ($4 billion) for the protection, in addition to 1.5 billion pounds ($2.4 billion) paid to Her Majesty’s Treasury for liquidity support during the crisis.
“It played an important role in stablising market perceptions of RBS after the impact of the financial crisis became clearer,” reads a statement issued by the bank. RBS has since reduced the portfolio of insured assets by 63 percent, to around 105 billion pounds ($169 billion). Now that the bank has recovered, it is announcing its exit from the program as it looks to return to private ownership — currently 81 percent owned by the government — and free itself from the heavy fees associated with the scheme.
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“We all want a system in which banks will never again need to seek credit support from Government in a financial crisis,” said RBS group chief executive in the statement. “Huge progress has been made towards that goal and our exiting the APS is a significant milestone in RBS’s recovery.”
RBS is leaving at the earliest date possible under the agreement, and has received approval from the Financial Services Authority.
“The government’s strategy remains to return RBS to the private sector when it is valuable for the taxpayer to do so,” said Chancellor of the Exchequer George Osborne in a statement, according to Bloomberg Businessweek.
This news comes as major American banks such as Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), and Citigroup (NYSE:C) also strengthen their positions after government intervention during and after the crisis. Despite a new volley of lawsuits, recent earnings suggest that financial institutions are beginning to overcome the difficulties associated with the crisis and general economic condition.