Royal Bank of Scotland has sealed a £1.5bn deal with the Treasury to rid itself of the so-called dividend blocker.
The deal will see RBS paying an upfront £320m plus £1.18bn at a later date if the state-backed bank's independent shareholders approve.
EU watchdogs also extended the deadline for the sale of the 315-branch Williams & Glyn.
The buy-out of the blocker, or the so-called "dividend access share" held by the Government, is seen by RBS as a key step in "normalising" its balance sheet. The prospect of anything other than a token payment being made to shareholders any time soon, however, remains slim.
Last year RBS lost £8.2bn and it remains beset with legal and regulatory difficulties which continue to complicate efforts to revive the business and detoxify its brand.
The bank is one of many involved in a global regulatory investigation into the alleged rigging of London's foreign exchange market by traders. Watchdogs are also investigating its Global Reconstruction Group, which handles business borrowers classified as distressed. An action group has formed with the aim of suing over the unit's activities.
The EU has nonetheless given the green light to the deal, extending the Williams & Glyn deadline at the same time. The new bank, originally known as Rainbow, will be sold via a flotation on the London Stock Exchange, which must now begin by the end of 2016. All of the shares must be disposed of by the end of 2017. The original deadline was at the end of 2013.
The EU last night said it did not believe a delay would jeopardise the viability of the business. Joaquin Almunia, EU competition commissioner, said: "The Commission has agreed to extend the deadline for divesting Rainbow because UK authorities and RBS have proven their commitment to create and divest Rainbow as a solid standalone bank."
Ross McEwan, RBS's chief executive, said: "The agreement is a vote of confidence in the progress we have made."
Shares in RBS ended yesterday up 0.5p at 309.8p. The blocker would have expired if they had hit 650p.Reuse content