The deal brings a finality to the issue related to the spin-off of RBS’ banking division that has been dogging it since years.
The European Commission has concurred with a British government plan that frees the Royal Bank of Scotland from an obligation to sell more than 300 of its branches.
This development amicably concludes RBS’ seven-year struggle to meet its bailout conditions.
The British finance ministry has stated that the European Commission has in principle agreed to alternative proposals that will see the bank fund nearly $1.09 billion (835 million pounds) to help the so-called challenger banks and boost competition.
Earlier, the Royal Bank of Scotland had tried to sell its banking business division Williams & Glyn, in order to meets its 45 billion pound bailout condition at the height of the 2007-2009 global financial crisis. It had however failed in this effort.
The deal is a major milestone for RBS since it marks an end to its state aid commitments which can now effectively lead to its recovery and restoration of dividends.
The last regulatory hurdle facing RBS is settling an expected multi-billion dollar fine from the United States Department of Justice for claims that RBS improperly sold mortgage bonds in the run-up to the financial crisis.
So as to meets its new state-aid requirements, the bank will now have to spend 425 million pounds on a capability and innovation fund in order to grant funding to competitors; it will also have to spend 350 million pounds to encourage customers to switch their accounts from RBS.
As per the finance ministry, when running costs are included the bank’s liabilities are set to rise by a further 60 million pounds.
Furthermore, RBS has separately stated, it will take an additional 50 million hit in its 6 monthly results, which it is scheduled to report next week.
Originally, the European Commission had ordered the sale of RBS’ Williams & Glyn unit to prevent it from having an unfair advantage and pose a systemic risk to the broader EU economies.
While RBS has spent 1.5 billion pounds in its effort to spin-off its banking division, which was to be branded Williams & Glyn, the effort failed since it could not separate it from its IT system.