RBS 2010 Annual Report Download - page 403

Lending Commitments Letter
On 26 February 2009, the company entered into a deed poll in favour of
certain UK Government departments under which it undertook to support
lending to creditworthy borrowers in the UK in a commercial manner with
effect from 1 March 2009. On 18 May 2009, the company entered into an
amendment to this deed poll which took effect from 29 May 2009 and on
20 November 2009, the company executed a further amendment to this
deed poll. This lending commitment was a pre-requisite to the company's
participation in the APS and other Government backed schemes, the
objective of which was to reinforce the stability of the financial system
and support the recovery of the economy.
Pursuant to this lending commitment, the company agreed to increase its
lending in the 12 months commencing 1 March 2009 from its UK banking
operations to UK businesses by, in aggregate, £16 billion above the
amount previously budgeted.
The company also made a commitment to increase lending to
homeowners, including first time buyers, in the United Kingdom. The
company undertook to increase its residential mortgage lending by at
least £9 billion above the amount previously budgeted in the 12 months
commencing 1 March 2009.
Such additional lending was subject to the company's ordinary course
pricing and other terms, and certain commercial, risk, credit and
regulatory considerations.
The company's compliance with its lending commitments is monitored by
the UK Government, and is subject to a reporting process.
The company also made certain undertakings as regards marketing in
support of its lending commitments and certain other matters relating to
its business and residential lending practices and policies. The lending
commitments made in the deed poll supersede the commitments given
by the company in the First Placing and Open Offer Agreement and the
Second Placing and Open Offer Agreement.
On 23 March 2010, the company agreed with the UK government certain
adjustments to the above lending commitments for the 2010 commitment
period (the 12 month period commencing 1 March 2010), to reflect
expected economic circumstances over the period. As part of the
amended lending commitments, the company has committed, among
other things, to make available gross new facilities, drawn or undrawn, of
£50 billion to UK businesses in the period 1 March 2010 to 28 February
2011. In addition, the company has agreed with the UK government to
make available £8 billion of net mortgage lending in the 2010
commitment period. This is a decrease of £1 billion on the net mortgage
lending target that previously applied to the 2010 commitment period
which ends on 28 February 2011, to reflect that the mortgage lending
commitment for the 2009 commitment period was increased from £9
billion to £10 billion.
BShare Acquisition and Contingent Capital Agreement
On 26 November 2009, the company and HM Treasury entered into the
Acquisition and Contingent Capital Agreement pursuant to which HM
Treasury subscribed for the initial B shares and the Dividend Access
Share (the "Acquisitions") and agreed the terms of HM Treasury's
subscription for an additional £8 billion in aggregate in the form of further
Bshares (the "Contingent B shares"), which will be issued on the same
terms as the initial B shares. The Acquisitions were subject to the
satisfaction of various conditions, including the company having obtained
the approval of its shareholders in relation to the Acquisitions.
The company and HM Treasury further agreed the terms of the £8 billion
Contingent Subscription of the Contingent B shares in the Acquisition and
Contingent Capital Agreement. For a period of five years from 22
December 2009 or, if earlier, until the occurrence of a termination event
or until the company decides (with FSA consent) to terminate such
Contingent Subscription (the "Contingent Period"), if the Core Tier 1 ratio
of the company falls below five per cent (and if certain other conditions
are met) HM Treasury has committed to subscribe for the Contingent B
shares in no fewer than two tranches of £6 billion and £2 billion (or such
smaller amounts as the company and HM Treasury may agree). Any
unused portion of the £8 billion may be subscribed in one or more further
tranches.
The company may, subject to certain conditions, at any time terminate
the Contingent Subscription in whole or in part, with the consent of the
FSA. The company is required to pay an annual fee, for the Contingent
Period, in relation to the Acquisitions and the Contingent Subscription of
£320 million less four per cent per annum of the value of any B shares
subscribed for under the Contingent Subscription. Such fee is payable in
cash or, with HM Treasury's consent, by waiving certain UK tax reliefs
that are treated as deferred tax assets or through a further issue of B
shares to HM Treasury. The annual fee ceases to be payable on
termination of the Contingent Subscription and if the company terminates
the Contingent Subscription in part, the fee will reduce proportionately.
The company gave certain representations and warranties to HM
Treasury on the date of the Acquisition and Contingent Capital
Agreement, on the date the circular was posted to shareholders, on the
first date on which all of the conditions precedent were satisfied, or
waived, and on the date of the Acquisitions. The company has agreed to
give such representations and warranties again on each date (if any) a
Contingent Subscription is triggered and on each date (if any) on which B
shares are issued pursuant to a Contingent Subscription.
The company agreed to reimburse HM Treasury for its expenses incurred
in connection with the Acquisitions and agreed to do so in connection
with the Contingent B shares, if the Contingent Subscription is exercised.
The company agreed to a number of undertakings, including with respect
to: (i) restrictions on the payment of dividends or other distributions on,
and the redemption of, certain securities; (ii) expectations regarding the
repurchase of the B shares by the company; (iii) renegotiations of the
terms of the Contingent Subscription as a result of future legislative or
regulatory changes; (iv) negotiating in good faith to maintain the status of
the B shares and Dividend Access Share as Core Tier 1 capital; and (v)
restrictions in relation to the company's share premium account.
401RBS Group 2010
Additional information