• Governments will slow asset sales

Royal Bank of Scotland has been given the go ahead by its shareholders to enter the UK Government's Asset Protection Scheme.

It is likely more than £100bn of real estate assets will enter the programme including a number of hotel deals.

The documentation issued by HM Treasury on which assets are being pumped into the scheme shows that commercial real estate finance comprises £40bn of assets and there is a further £80bn of unspecified loans which "includes as significant portion of loans collateralised by real estate".

Lloyds Banking Group is not going to participate in the scheme but is separately raising £22.5bn of additional capital. It has paid the Government £26m in relation to fees it incurred setting up the APS and RBS is paying £45m.

The Government is injecting £25.5bn in extra capital to RBS, taking its economic interest in the bank to 84%. This was despite the pool of assets insured by the APS shrinking from £325bn to £282bn.

The UK real estate finance portfolio contains £32.1bn of assets from RBS's total books of £57.2bn. In other words more than half of its UK property lending is now in the APS. All loans in default and all loans on the internal watch list are included together with other assets which were considered to have the highest probability of default.

The whole scheme is being overseen by the newly established Asset Protection Agency. This body manages the rights received by the Government from the APS agreement with RBS. It is designed to operate at arms-length from Government and make decisions on a "commercial basis".

The APS remit is to both protect RBS from losses on loan defaults and ensure that bank customers whose assets are in the APS "continue to be treated fairly".

RBS has to meet the first £60bn of losses on the portfolio with the Government picking up 90% of any losses above this amount. The APS is charged with minimising losses on any assets and maximises recoveries through an "overarching asset management objective".

APS now joins the Irish Government's National Asset Management Agency. The Irish Government already has an effective 25% stake in its two leading banks – Bank of Ireland and AIB. This might well rise to a 50% or more stake, according to the governor of Ireland's central bank as the banks require more capital following their participation in NAMA.

The book value of the loans being put into NAMA is €77m. The Irish Government has indicated it will want a 30% discount although it is warning that there is considerable uncertainty as to the final price it will pay.


HA Perspective: The involvement of Governments adds yet another (and big) complication to how over leveraged assets will be worked out. Factor in Dubai World, which is quasi Government (although not as close to Government as some bondholders thought), and there is a lot of commercial property, including a significant chunk of hotel property, where governments have a major role in deciding how distressed assets will be brought to market.

Does the involvement of governments make it more or less likely that assets will be quickly traded? Almost certainly less likely. Governments are conservative in outlook, their workforce knows that while you are rarely fired for doing nothing, doing something can land you in trouble.

Lloyds's decision not to participate in the APS at least gives it more room for manoeuvre. As it moves beyond Government reach, Lloyds might choose a more radical strategy in tidying up its loan book. But even here it remains hard to see a rapid transformation.

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