RBS Pays Final £1.2 billion Dividend Fee to the British Treasury

The Royal Bank of Scotland has made its final payment to Britain’s finance ministry in order to end an arrangement with the British government under which it had to pay dividends to the government before other shareholders.

This arrangement referred to as a dividend access share (DAS) was instituted in 2009 when the government provided £45 billion to the bank as a bailout package.

The latest payment of £1.2 billion is the final fee towards ending this arrangement and will be an important step towards the bank reverting to private ownership.

In a statement, Ross McEwan, chief executive of RBS said,

This is another important milestone in our plan to resume capital distributions to our shareholders and represents one less hurdle in our path to build the number one bank for customer service, trust and advocacy

This payment will be shown in the bank’s financial statement for the first quarter in 2016 and is expected to reduce the value of its Tangible Net Asset Value per share by approximately 10 pence.

Analysts have said that this payout will impact the bank’s ability to make a profit this year. However the bank is very far from making a profit, declaring a £2 billion loss for 2015 based on its latest financial disclosures which were reported earlier this year. It was the eighth straight year of losses for the Royal Bank of Scotland.

Additionally the bank has several challenges this year which include penalties from U.S regulators for irregular practices in selling mortgages before the 2008-09 crisis, forex rigging and a requirement to perform well in the scheduled stress tests by the Bank of England. It also needs to successfully spin-off 300 branches of its network Williams & Glyn in accordance with an EU mandate.

The British government still own seventy three percent of the bank. The government sold around 5 percent of its stake in August last year, incurring a loss of £1 billion. It intends to sell over 75 percent of its stake during the next five years. UK Chancellor George Osborne has earlier said that he hopes to generate £25 billion from divesting shares in RBS.

RBS shares are currently trading at 232 pence per share. For taxpayers to break-even on their stake in the bank, share prices needs to reach 502 pence. Independent forecasters in Britain have said that the bailout packages given to banks in the aftermath of the 2008 financial crisis will result in losses of £17.5 billion to the exchequer.

Charlie Harrison

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