EDINBURGH – Royal Bank of Scotland Group plc (LSE, NYSE: RBS), parent of Providence-based Citizens Financial Group Inc., is scrambling to find cash to pay for the U.K. government’s toxic-asset insurance scheme, according to a report today by the Daily Telegraph.
The bank is in “intensive negotiations with the Treasury” over the asset-protection scheme announced last month (READ MORE), persons close to the talks told the London-based newspaper.
Analysts have told the Telegraph that they expect RBS will seek government backing for as much as 200 billion pounds in bad assets. If it does, and the British government follows the U.S. lead, charging a fee of 4 percent, the bank could face a bill of as much as 8 billion pounds (nearly $11.4 billion at today’s exchange rate).
Executives at RBS – which saw the government become a majority stakeholder in November (READ MORE) – are seeking a way to pay that tab without either ruining the bank’s capital ratio or increasing the British Treasury’s 70-percent ownership stake.
Meanwhile, RBS yesterday announced it will pare its annual cash bonuses by 90 percent. For 2008, employees will receive payments totaling 175 million pounds (about $248.3 million), down from 2.5 billion pounds (about $3.5 billion) the year before, Bloomberg News reported.
Those payments may be supplemented at a later date by as much as 600 million pounds ($850 million) in deferred compensation, a person familiar with the matter told Bloomberg. And lower-paid workers will receive 165 million pounds ($234 million) to replace the bank’s profit-sharing plan. The payments reportedly would be made in special RBS bonds – not redeemable until five years after their date of issue – that would be paid over three years, starting in 2010.
Still, “all the additional bonuses … are conditional on performance,” Prime Minister Gordon Brown stressed at a news conference in London today. “There will be no rewards for failure.”
The deferred awards also will be subject to reduction “if future losses arise in relation to their 2008 activities,” the bank said in a statement.
RBS last month said it anticipated its 2008 loss would reach a record 28 billion pounds (nearly $40 billion). “When we think about them geographically, the U.S. is the biggest area of losses; Europe also significant, and the U.K. smaller; again in the wholesale, much more in the wholesale area,” CEO Stephen Hester told analysts and investors during a Jan. 19 conference call.
Royal Bank of Scotland Group plc (LSE, NYSE: RBS), based in Edinburgh, Scotland, is the parent of Citizens Financial Group Inc. The Providence-based commercial bank holding company and its subsidiaries operate 1,600 branches in 13 states, under the Citizens Bank and Charter One brands, plus non-branch offices in about 40 states. Additional information is available at CitizensBank.com or www.rbs.com.
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