Asset protection fees too low, says watchdog

The National Audit Office (NAO) said the Treasury under former Chancellor Alistair Darling could have fixed a higher minimum charge for Royal Bank of Scotland to use its Asset Protection Scheme (APS), while Lloyds Banking Group could also have paid more when it decided to pull out earlier this year.

The APS was further criticised for not doing more to encourage lending, with Lloyds and RBS falling a long way short of business loan targets in the scheme's first year.

The report on the scheme found the Treasury did not put enough analysis into the potential fees arranged for RBS to use the APS – designed to restore confidence in the financial market following the 2008 financial crisis.

RBS faces a minimum charge of 2.5bn, but the NAO believes this could have been set at up to 4.4bn.

The bank agreed final details of the scheme last November to insure 282bn of assets. The Government injected 25.5bn of new capital into the bank, raising its stake to 84 per cent, which has since fallen to 83 per cent.

Lloyds, 41 per cent owned by the taxpayer, paid 2.5bn in exit fees when it opted to raise funds through an investor cash-call instead of using the APS.

It could have been forced to pay between 3bn and 4.5bn based on typical rate of return calculations, according to the NAO.