Royal Bank of Scotland (RBS) shareholders have voted on Tuesday at an extraordinary general meeting to join the British government's Assets Protection Scheme (APS), which effectively insures the bank's continued operation.
The move will raise the British government's stake in the ailing bank from 70 percent to 83 percent.
On Monday, the European Union backed the plan to bailout RBS. European Commission officials said they expected the cost to be between 60 billion pounds (about 98 billion U.S. dollars) and 100 billion pounds (about 168 billion U.S. dollars), which would make it Europe's largest ever rescue package for a private company.
Permission was granted provided the RBS sold off some of its assets. EU Competition Commissioner Neelie Kroes warned: "In case RBS does not deliver on its balance sheet reduction targets by 2013, the Commission will be able to intervene again and more divestments will be required."
A row blew up earlier this month when it was revealed that the RBS wanted to pay bonuses totaling 1.5 billion pounds (about 2.4 billion U.S. dollars) to its top performing bankers. As the largest shareholder in the bank, the government found itself under attack as public dissatisfaction at the planned move mounted. As part of the APS package the Treasury demanded a say in the payment of bonuses.
RBS chairman Sir Philip Hampton told the meeting in Edinburgh, Scotland: "We are committed to ensuring that we run the group in a commercially viable manner. We see our ability to pay competitive rates to our staff as essential to this. This strategy underpins our prospects of recovering value for taxpayers and shareholders alike.
"There have been no threatened mass resignations of the Board, at any time. The Board are wholly committed to their legal and other duties and will remain so, on the basis that they are able to discharge them."
The APS will now cover a 282 billion pound (about 460 billion U.S. dollars) pool of specified assets. If losses on this pool were to exceed 60 billion pounds, the Treasury would bear 90 percent of any subsequent losses, while 10 percent would remain with the RBS.The RBS will pay 700 million pounds (about 1.138 billion U.S. dollars) per year for the first three years and 500 million pounds(about 813 million U.S. dollars) per year after that for this cover.
Sir Philip said he did not expect losses to exceed 60 billion pounds (about 98 billion U.S. dollars), up to which the RBS would cover, and so he did not expect that the government would have to bear any losses.
Sir Philip said as part of winning EU approval, the RBS will reduce its presence in the UK banking sector by selling the RBS branches in England and Wales and the NatWest branches in Scotland, together with its direct small and medium enterprise business across the UK. This is likely to see a return to the high street of Williams and Glyn's Bank, which had been swallowed up in a previous RBS expansion.
Other parts of the RBS which must be sold before 2013 are RBS Insurance, including the Direct Line and Churchill businesses; Global Merchant Services, which is the card payments acquiring business; and the RBS interest in RBS Sempra Commodities, a leading global commodities trader.
The British Treasury said in a statement: "After requiring significant taxpayer support, RBS can now get on with the task of planning for its future and working to give the public a good return on its investment in the bank.
"Importantly, the divestments that RBS will make in the years ahead will be part of the biggest shake-up in High Street banking this country has seen in decades. Together with the eventual sale of Northern Rock and divestments from Lloyds, we could have three new banks operating on the High Street within four years."
The RBS ran into trouble when it suffered losses in the early part of 2008 as a result of the international financial crisis. It was forced to go to the British government for help, and the government shored it up with funds in October 2008 and again in February 2009.
Altogether, the British government is estimated so far to have provided 117 billion pounds (about 193 billion U.S. dollars) to shore up the RBS, Lloyds and Northern Rock./.