Source: European Commission
The European Commission has opened an in-depth investigation to assess whether the alternative package proposed by the UK authorities is an appropriate replacement for the commitment for the Royal Bank of Scotland (RBS) to divest Williams & Glyn, required as part of its restructuring plan.
In 2009, the Commission approved under EU state aid rules the large public recapitalisation of RBS on the basis of the restructuring plan and associated commitments, which were amended in 2014. As part of this restructuring, the UK had committed to divest RBS's UK retail and SME banking operations, Williams & Glyn (also known as "Rainbow"), to remedy competition concerns in the concentrated UK SME banking sector, where RBS is the leading bank.
Commissioner Margrethe Vestager, in charge of competition policy, said: "RBS is the leading bank in the UK SME banking market and received significant state support during the financial crisis. The Commission is now seeking the views of all interested parties on an alternative package proposed by the UK to replace RBS's commitment to divest Williams & Glyn. We can only accept this proposal, if it has the same positive effect on competition as the divestment of Williams & Glyn would have had. This is important for fair competition."
RBS has made significant efforts to divest Williams & Glyn. So far the successive divestment attempts have not been successful. RBS launched a new trade sale process in 2016. However, according to the UK authorities, RBS only received bids for parts of Williams & Glyn but not the full business, and they would not be completed before the sale deadline of 31 December 2017 under the commitments.
For these reasons, the UK authorities are seeking to amend the commitment to divest Williams & Glyn, by substituting it with an alternative package. The package of alternative measures proposed by the UK authorities in March 2017 involves an estimated upfront cost for RBS of around £750 million plus an ongoing reduction in RBS's earnings. It includes:
a fund, to be administered by an independent body, that eligible challenger banks could access to finance the increase of their SME banking capabilities;
funding for eligible challenger banks to help them to encourage SMEs to switch their accounts from RBS to them;
RBS granting SME customers of eligible challenger banks access to its branch network, to support the above measures; and
an independent fund to invest in innovative financial services (mainly the financial technology industry - also known as FinTech).
According to the UK authorities, the alternative package, if accepted by the Commission, would remedy the distortion in the UK's SME banking market resulting from the state aid to RBS, with greater speed and certainty than would the divestment of Williams & Glyn.
The Commission can only accept modifications to existing commitments by Member States and aided banks that were given to obtain approval for restructuring aid (such as the one leading to the existing RBS restructuring decision), if the new commitments can be considered equivalent to those originally provided.
The UK's alternative package comprises a set of novel behavioural measures, the effect of which is difficult to quantify on the basis of information currently available to the Commission. The Commission is therefore opening an in-depth investigation to give interested third parties, as well as the UK, an opportunity to submit comments during one month following the publication of this opening decision.
This opening of an investigation does not prejudge its outcome. The Commission will carefully review the responses received before taking a final decision on whether or not to accept the alternative plan, which if accepted would allow RBS to meet its final commitment under the state aid decision and swiftly close the case.
RBS is one of Europe's largest financial services groups. During the financial crisis, in late 2008, RBS was on the verge of collapse and has benefitted from the following state aid measures:
a recapitalisation of £45.5bn and an (eventually unused) five year contingent recapitalisation of £8bn
an impaired asset measure covering excess loss (which was terminated with RBS not having received any payments from the State, but instead paid a cumulative fee of £2.5bn for the participation) and
guarantees and other liquidity measures (now fully repaid).
These aid measures resulted in the nationalisation of RBS (the UK Government currently holds 71.3% of RBS shares) and were accompanied by the restructuring of RBS approved by the Commission in 2009 and amended in 2014.
As part of this restructuring, the UK committed that RBS would undertake several divestments, reduce RBS's balance and risk-weighted assets, and comply with behavioural measures such as an acquisition ban. The divestment of Williams & Glyn, to be completed by end-2017, is the last outstanding commitment.
Williams & Glyn is a significant part of RBS's branch-based retail and SME business, with total assets of around £20bn.
The non-confidential version of this decision will be made available under the case number SA.47702 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.