Yesterday, the U.K. Treasury announced that it has restructured its equity investment in the Royal Bank of Scotland (RBS) to “stabilize further its position and ensure it has the tools to enhance its contribution to the long term strength of the economy.” The U.K. government is not injecting any new money into RBS. Instead, the U.K. Treasury will convert its preference share investment, announced in October, in RBS to ordinary shares. This is in addition to the ordinary shares the U.K. government received for acting as underwriter in RBS’s £15 billion equity issuance in December. The restructuring of Treasury’s investment is intended to:  

  • Make available additional core tier 1 capital to the bank to strengthen its resources, enable it to absorb expected losses and permit it to restructure its finances; and
  • Give the bank the opportunity to build its capital further so that it is able to maintain and increase its support for the real economy by facilitating £6 billion more lending to industry and homeowners, over and above existing commitments.  

In addition to committing to an additional £6 billion of loans, RBS agreed to expand its existing agreement to maintain, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels or above to include large corporate lending.

RBS confirmed the financial support package, stating “Overall the package is both wide ranging and, prospectively, supportive and well-targeted. The authorities have listened to market needs and responded. We fully understand the role banks need to play in return, in providing support for our customers, and will be doing just that.”