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European Commission

Press release

Brussels, 9 April 2014

State aid: Commission approves amendments to restructuring plan of Royal Bank of Scotland

The European Commission has concluded that proposals by UK authorities to amend Royal Bank of Scotland's (RBS) restructuring plan are in line with EU state aid rules. The Commission has found that a delay of the divestment of RBS's UK SME bank entity Rainbow will not jeopardise the viability of the business. The Commission has also agreed to changes of the terms of the priority dividend received by the UK. The changes endorsed today better align the incentives of RBS with those of the UK without resulting in lower dividends as compared to what RBS could realistically be expected to pay under the existing terms.

Commission Vice President in charge of competition policy Joaquín Almunia said: "Establishing Rainbow as a standalone market player is key to increasing competition in the UK market for banking services to SMEs. The Commission has agreed to extend the deadline for divesting Rainbow because the UK authorities and RBS have proven their commitment to create and divest Rainbow as a solid standalone bank."

In 2009, the Commission approved RBS's restructuring plan (see IP/09/1915). As part of the restructuring plan, the UK committed to divest RBS's UK SME banking operations, Rainbow, to remedy competition concerns in the concentrated UK SME and mid-corporate banking sector, where RBS is the leading bank. RBS tried to divest Rainbow by proposing to transfer Rainbow's assets and liabilities to a buyer with existing banking operations in the UK retail and SME market. However, after three years of unsuccessful negotiations with potential purchasers, RBS had to modify its plans and instead proceed to establish Rainbow as a standalone bank. This meant that RBS was unable to respect the committed deadline of end December 2013 and the UK requested to postpone the Rainbow disposal by several years. The UK authorities have committed that RBS would develop the Rainbow business as a fully viable bank on a standalone basis and preserve the viability and competitiveness of the Rainbow business until the full divestment. The Commission is satisfied that the viability and competitiveness of Rainbow will not be endangered by the delay.

The 2009 restructuring plan also provided that RBS should pay a priority dividend (Dividend Access Share - DAS) to the UK state before paying any dividends on shares. However, expectations that RBS would return to significant profit as of 2011 have not materialised and no payments have been made under the DAS. Looking to the future, the previous terms of the DAS, and RBS's lower than expected profitability, would probably have discouraged dividend payments and encouraged capital retention. To address this situation, under the amended terms, the DAS is replaced by a fixed dividend amount, which RBS will pay to HM Treasury. The Commission considers that a private investor would have accepted such changes and that they confer no advantage to RBS. The Commission therefore concluded that the amendments to the terms of the DAS involve no additional state aid to RBS.


RBS is one of Europe's largest financial services groups. During the financial crisis, in late 2008, RBS was on the verge of collapse.

Amongst other measures of state support, RBS received a recapitalisation of £25.5 billion from the UK State against the issuance of B Shares. In conjunction with the issuance of B shares, HM Treasury received the right to a single global "dividend access share" (DAS), which is a discretionary non-cumulative priority dividend. In practice, RBS has not paid any dividends under the DAS. Since 1 January 2012, for any new recapitalisation, if a bank is unable to pay the dividend on a state hybrid instrument in cash, it has to pay it in new shares (see IP/11/1488).

The non-confidential versions of these decisions will be made available under the case number SA.38304 in the State Aid Register on the competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

Contacts :

Antoine Colombani (+32 2 297 45 13, Twitter: @ECspokesAntoine )

Yizhou Ren (+32 2 299 48 89)

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