Royal Bank of Scotland was locked in talks last night that could see it put more than £300bn of loans and risky assets into the Government's asset protection scheme.
RBS is due to announce its participation in the long-awaited scheme today when it releases the extent of its losses for 2008. Its bankers were finalising details of the deal to insure assets with the Treasury last night. The £300bn-plus of assets is more than previously expected.
RBS is expected to pay for the insurance in non-voting shares which, while not increasing the Government's pot-ential 70 per cent holding in the bank's ordinary equity, will dilute other in-vestors' economic stake in the bank. Lloyds Banking Group, formed from the merger of Lloyds TSB and HBOS last month, is set to give details of a similar deal when it announces its results tomorrow. Both banks will have to give commitments on new lending in return for the insurance, which is designed to limit their future losses and free capital for them to lend.
Other issues to be resolved include the price, as a percentage of the assets covered, that RBS will pay. Analysts have expected the charge to be between 3 per cent and 4 per cent. Also being hammered out was how much of the "first loss" RBS would take on assets before the insurance takes effect.
The Government wants to avoid nationalising RBS and Lloyds and instead wants to support them as private-sector banks to get them lending to the British economy. But uncertainty about the details of the insurance scheme have caused volatility in the banks' share prices in recent weeks.
Stephen Hester, RBS's chief executive, is expected to announce a total loss for last year of up to £28bn today, including massive credit impairments and writedowns on the value of past acquisitions. He will also map out his plan to shrink and revive RBS, whose strategy of acquisitions and expansion in booming debt markets nearly led to its collapse in October.
It also emerged that Sir Fred Goodwin, Mr Hester's predecessor, has already started to draw his £650,000 a year pension. Stephen Timms, financial secretary to the Treasury, said UK Financial Investments, which manages the Government's stakes in banks, was looking into whether it could claw back some of the pension. RBS declined to comment. Treasury and Lloyds Banking spokesmen were not available.Reuse content