RBS repayments pave the way for dividends to resume

22nd March 2016



This morning Royal Bank of Scotland confirmed it has paid £1.2 billion to the UK government, which will clear the way for it to resume dividend payments to ordinary shareholders.

The sum is around 10 times the amount the Treasury is expecting to get from Lloyds dividend payments in the first half of this year.

The ‘Dividend Access Share’ arrangement gave the Treasury dibs on £1.5 billion of dividend payments from RBS, and was baked into the bank’s bailout to afford some protection for the taxpayer, according to Hargreaves Lansdown.

Today’s £1.2 billion payment extinguishes the Treasury’s priority on payments, yet dividends for ordinary shareholders are still some way off, experts warn. This year had been pencilled in as the first year RBS would make a dividend payment since 2008, but that has now been pushed back to 2017 at the earliest.

The taxpayer now owns 72.6% of RBS, and Hargreaves predicts it’s going to take a long time before that shareholding leaves the Treasury’s books. The government did sell 5.4% of its holding in August 2015. They sold the shares for £3.30 each; the share price currently stands at around £2.30.

Laith Khalaf, senior analyst at Hargreaves Lansdown, says: “Today’s payment to the Treasury represents a step in the rehabilitation of RBS into a normal bank, but there’s still an awfully long way to go.

“Dividends have been pushed back until the full extent of US conduct costs is out in the open, and the share price is still languishing well below what the government paid for the bank, which means it’s going to be some considerable time before the bank is weaned off taxpayer support.

“RBS is heading in the same direction as Lloyds and will probably get there in the end, but it’s going to be a long haul. The risk for shareholders is that while the bank is still getting to its feet, the economy takes a nosedive and knocks it back to square one.”


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