Royal Bank of Scotland in £1.2bn ‘milestone’ to resume share payouts

Royal Bank of Scotland Group and the UK government have agreed to scrap the state’s rights to preferential dividends, paving the way for the bank to return capital to shareholders as early as next year.

Royal Bank of Scotland in £1.2bn ‘milestone’ to resume share payouts

The banking group — which owns Ulster Bank — paid £1.2bn (€1.53bn) to the UK Treasury to retire Britain’s so-called dividend access share, the Edinburgh-based lender said yesterday.

The payment will reduce the bank’s tangible net asset value per share by about 10 pence, in the first quarter, and would have lowered its common-equity Tier 1 capital ratio, a measure of financial strength, by about 50 basis points, at the end of 2015.

Chief executive Ross McEwan is checking off another item from an extensive list of issues he must overcome to help UK chancellor of the exchequer, George Osborne, return the bank to full private ownership and pay a dividend.

Mr McEwan has pledged to return capital to shareholders next year, once the bank has reached a deal with US authorities over the sale of mortgage-backed securities, passed stress tests from the Bank of England, and agreed to sell its Williams & Glyn consumer bank.

“This is another important milestone in our plan to resume capital distributions to our shareholders,” said Mr McEwan.

“On the back of progress we have made in strengthening the bank’s balance sheet in recent years, I am pleased that we are, today, able to repay the UK government £1.2bn to finally retire the dividend access share.”

The dividend access share was issued in 2009, when the UK Treasury provided £25.5bn of equity capital to RBS, to help save it from collapse, and gave the state-enhanced dividend rights for the support it provided.

RBS had already paid £320m toward cancelling the access share in 2014. Plans by the UK are being closely watched here.

The outgoing government had pledged to start the sale process of state-owned Allied Irish Banks — which was also rescued at huge cost to taxpayers — as early as this autumn.

However, the turmoil of stock markets, since the start of the year, has raised serious questions over any sale of banking assets.

Amid the slump, bank stocks across Europe have been among the worst-hit.

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