Banks push for Treasury nod on asset protection

Published on Saturday 24 October 2009 14:49

ROYAL Bank of Scotland remains locked in talks with the Treasury about reducing its involvement in the government's asset protection scheme (APS) and Lloyds Banking Group is continuing its negotiations about avoiding the scheme altogether.

There has been speculation that an announcement on both banks could be made by the government as early as this week, but it is understood talks are now unlikely to be resolved that quickly. It is thought a final decision may not be announced by the Treasury until next week as many details are still to be ironed out. The Treasury is likely to want to make a single announcement on both banks to end uncertainty in the market.

It is understood that the government is planning a further multi-billion-pound injection of public money into RBS, which is already 70 per cent owned by the taxpayer.

This would enable RBS to reduce the assets it is putting into the APS to as low as 265 billion from 325bn, the sum originally negotiated. RBS's plans to reduce its reliance on the scheme are being taken as a sign of an improvement in the economic environment and the fact that some of its riskier loans have now expired.

It is also becoming more hopeful that it can raise money from investors to eventually reduce the level of state ownership in the bank. There is speculation it may want to raise up to 5bn through a rights issue and share placement.

The APS was set up by the government in February for state-controlled banks to insure their worst assets in return for a fee.

While RBS is trying to reduce its involvement in the costly scheme, Lloyds is hoping to avoid it through a series of capital-raising initiatives.

The bank, which is 43 per cent state-owned, was to put about 260bn into the scheme for a 15.6bn fee.

Eric Daniels, chief executive of Lloyds, is now wanting government clearance to try to raise 25bn from investors through a rights issue and debt-for-equity swap.

Both RBS and Lloyds are in discussions with the European Commission (EC) about what parts of their business they may be forced to reduce or sell off as compensation for the state aid they have received.

The EC is also expected to approve the restructuring of Northern Rock this week, paving the way for the sale of the nationalised bank.

Virgin Money and Tesco Bank are both thought to be interested in buying parts of the bank.