EU backing allows RBS to avoid subsidiary sale

The Royal Bank of Scotland today confirmed that it has convinced the European Union of the merits of its plan to inject £835 million into boosting competition in the banking industry as an alternative to having to sell-off its tranche of Williams & Glyn branches.

A joint review by the European Commission and HM Treasury has resulted in an “alternative remedies package” aimed at encouraging customers to switch to other banks, allowing RBS to meet the state aid obligations that were a condition of its £45 billion taxpayer bailout in 2008.

A consultation process carried out by the EC, along with a market testing exercise carried out by the Treasury, gave rise to a final version of RBS’s plan and will include a £425 million fund aimed at competitors across the UK’s banking and fintech sector, as well as a £350 million pot meant to help challenger banks convince small and medium sized ex-Williams & Glyn business customers to switch from RBS.

RBS will also provide another £60 million to cover additional costs, such as those relating to implementation and customers’ costs of switching.

The Edinburgh-based lender said this morning that it had been informed by the Treasury that the alternative remedies package has now been agreed in principle between it and the EC Commissioner responsible for competition.

RBS’s 2016 Annual Results included provisions of £750 million to meet the cost of its then prospective plan, which will now be put into action, with an additional £50 million taking the total provision to £800 million.

RBS said it will also incur running costs for the duration of the scheme, which are estimated at around £35 million and will be mostly incurred before the end of 2019.

However, the terms of the revised package also stipulate that should the uptake within the Incentivised Switching Scheme not be sufficient, RBS could be required to make a further contribution which is capped at £50 million.

Ross McEwan, RBS CEO, said: “We welcome the progress that HMT and the EC Commissioner responsible for competition have made on agreeing an alternative package of remedies to increase competition in the SME marketplace. We await a formal decision on this proposal which would allow us to resolve our final State Aid divestment obligation.”