This represents a positive catalyst given the implicit vote of confidence from the Financial Services Authority – it sends a very strong signal that the regulator is willing to give the all-clear to a move that increases the risk profile of the group. That is why shares went up, despite the real core tier one capital impact from leaving, of around 0.8 per cent, though the APS was an irrelevance from the point of view of RBS claiming on it.
As the insurance protection is unlikely to be required, RBS reasons that there is little point continuing to pay for it. However, it is worth highlighting the scheme also provided RBS with a core tier one capital ratio benefit equivalent to 77 basis points at the end of June, so by exiting the APS this benefit will be lost. That said, we note that this benefit has been reducing over time as the company has been running-off the insured assets.
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RBS saves on the £500m annual fee and moves a small step closer to privatisation. This was designed to insure the majority UK-government owned bank against outsized losses on a £282bn portfolio of the bank’s riskier loans and investment. Those assets have since fallen by around 63 per cent to £105bn, owing to run-offs and divestments, and the bank never made a claim under the scheme.