RBS looks for alternative to government debt insurance scheme
The Royal Bank of Scotland has today suggested it will look for alternatives to the UK government's asset protection scheme in which the bank has agreed to inject £370 billion worth of loans for a fee of £19.5 billion. The idea is that these particular assets will be ring fenced and a line drawn under their potential losses in the short, medium and longer term. However, the £19.5 billion premium has attracted the attention of investors after Lloyds bank suggested a potential reduction in the number of loans protected hence leading to a sharply lower premium.
While it is potentially an option for Royal Bank of Scotland to raise more capital from shareholders, however, with the UK government owning 70% this would only confuse the situation. There is also the fact that even the chief executive of Royal Bank of Scotland believes the situation regarding the bank's loan book has not "topped out" and there may be worse to come. Against this background it will be difficult for the Financial Services Authority (FSA) to agree to a reduction on the grounds of stress testing and the UK government will ultimately have a significant say with a 70% shareholding.
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