Royal Bank of Scotland Group PLC (LON:RBS) said its risk weighted assets will be reduced by £4.7bn and it will be easier to sell its stake in Alawwal bank after the Saudi Arabian lender merged with rival Saudi British Bank (SABB).
RBS owned a 15.3% stake in Alawwal dating back to the UK bank’s disastrous acquisition of ABN AMRO in 2007. This stake is part of a 40% consortium stake managed by RBS’s Dutch subsidiary NatWest Markets NV on behalf of itself, the Dutch state and Banco Santander.
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The consortium’s resulting 10.8% stake in the merged group was immediately unwound, with a 4.1% stake transferred to RBS subsidiary NatWest Markets Plc, and the rest to the other members of the consortium.
RBS will make a £0.7bn profit attributable to ordinary shareholders as it recognises an income gain of £0.4bn on disposal of the Alawwal stake for shares received in SABB, plus £0.3bn from recycling foreign exchange and another £0.3bn benefit from extinguishing legacy liabilities, partly offset by a £0.3bn of non-controlling interests.
These changes and the reduction in risk-weighted assets will increase the bank’s CET1 core capital ratio by 60 basis points, it said.
RBS chief executive Ross McEwan, who recently announced that he is stepping down after five-and-a-half years in charge of the taxpayer-owned lender, said the release of capital was “a positive and material financial impact for RBS” and the conclusion of the merger “will help facilitate the future exit of our shareholding as we continue to focus on our key target markets”, though the SABB shares are subject to a six-month lock-up period before RBS can sell them.
NatWest Markets NV is now expected to transfer to NWM Plc ownership during the second half of 2019, subject to regulatory approvals, which is estimated to result in a further £1.2bn of FX reserves recycling.
RBS shares were up 2% to 216.5p in early trading on Monday.