Anthony Hilton: Light at the end of the RBS tunnel?


The other big banking story of the week got almost no publicity, perhaps because it came in the guise of the annual report of the Asset Protection Agency.

This is the body the Treasury set up at the time of the rescue of RBS to put in place the deal under which it was agreed the taxpayer would pick up the bill for any losses in excess of £60bn on RBS's £280bn toxic loan book. In return for this protection, RBS agreed to pay the APA what was in effect a massive insurance premium of several hundred million pounds a year.

How any responsible institution could have such a pile of doubtful loans is something that still beggars belief. The more uplifting story, however, is how far RBS has come under the leadership of Stephen Hester in sorting things out.

The APA report shows the book of bad loans has been reduced by £63bn in the last 12 months to stand at £120.8bn – less than half what it was at the time of the rescue. By the same token, the projected total losses are now expected to come in at no more than £39bn against the £60bn threshold they have to pass before the taxpayer – or the insurance policy – has to pay up. This is still a mind-blowing figure but it is a far cry from what might have been, and it has been sufficiently stress-tested for the APA to be fairly confident the taxpayer is off the hook.

But if RBS is now healthy enough to absorb the remaining losses on its own, there is no point in its remaining in the scheme and paying £125m every three months to the APA for the protection. That at least is the board's view but it needs also to persuade the Treasury, and give about six weeks' notice to the Financial Services Authority, before it will be allowed to exit. One imagines – given what is happening in the eurozone with the Libor scandal and the recent collapse in computer systems – this will make the Treasury ultra-cautious.

RBS nevertheless hopes to tell shareholders the news of its planned exit in September, which suggests a summer of wrangling lies ahead. But the positive message is that if the Treasury does agree, it will only be because it genuinely believes the bank poses no further risk to taxpayers, and is therefore on the mend. That would presumably pave the way for UKFI, the custodian of the taxpayers' 80 per cent stake, to start thinking seriously about a timetable to sell it off. Normality may be closer than we think.