The government has brokered an £835m deal with Brussels that will see Royal Bank of Scotland fund market competition to resolve issues around Williams & Glyn.
The Treasury said that it had struck an agreement in principle with European Commission competition chief Margrethe Vestager under which RBS would pay hundreds of millions of pounds to boost challenger banks.
The deal, which needs to be agreed by the European Commission’s college of commissioners, has been agreed as an alternative to RBS selling off the 300-branch, small business-focused Williams & Glyn.
In 2009, the commission required bailed-out RBS to sell off Williams & Glyn as part of EU regulations on state aid.
The deadline for the sale was for the end of this year. But, in February, amid struggles to sell the business, the Treasury said another option, in the form of a £750m competition-boosting fund, was being explored.
The Treasury said the now-£835m package set out today “is equivalent to the divestment of Williams & Glyn”.
Under the deal, a £425m “capability and innovation fund” will award 15 grants to challenger banks and other financial services providers to increase their business banking capabilities.
The deal also includes a £350m of funding to incentivise small businesses from Williams & Glyn to challengers. This figure includes £225m of “dowries” for challengers to attract businesses. The fund is intended to facilitate 120,000 small and medium-sized enterprises switching.
The bank will also fund £60m of additional implementation and other costs.
Senior Hargreaves Lansdown analyst Laith Khalaf said:
RBS is putting the past to bed, and this new agreement represents another milestone in the bank’s long journey back to good health.
The bank has already put aside £750m to cover the costs of this scheme, and an additional £50m charge with £35m of running costs looks like a small price to pay to make this longstanding issue go away once and for all.
There will of course be criticism of the large amounts of money RBS wasted on trying to spin off a challenger bank to meet its bailout terms, but hindsight is a wonderful thing. Brexit had a large part to play in quashing plans for a new challenger bank, and no-one saw that coming all those years ago.
City minister Stephen Barclay said: “The announcement today will help boost competition in the business banking market and marks another significant milestone in resolving a major legacy issue at RBS.
“It builds on the recent settlement with the Federal Housing Finance Agency and together they show the progress being made to resolve RBS’s outstanding issues.”
RBS chief executive Ross McEwan said: “We welcome the progress that [the Treasury] and the EC commissioner responsible for competition have made on agreeing an alternative package of remedies to increase competition in the [small business] marketplace.
“We await a formal decision on this proposal which would allow us to resolve our final State Aid divestment obligation.”