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Royal Bank of Scotland's Remedy Plan Gets Regulatory Nod

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Royal Bank of Scotland (RBS - Free Report) has received the European Commission’s (EC) consent for an alternative remedy package it had put forth in July 2017, which promises to make U.K.’s small and medium-sized banking market more competitive.

The package had been proposed as an alternative to the sale of Williams & Glyn. This divesture was part of the conditions that the EC had imposed on the bank for the £45.5 billion bailout it received during the crisis.

What the Remedy Plan Entails

Under the package, Royal Bank of Scotland would establish a “Capability and Innovation Fund” with £425 million, which would be granted to challenger banks in the U.K. banking and financial technology sectors in order to encourage them to improve their financial stability.

Further, the bank will also provide another £350 million to “Incentivized Switching Scheme” which shall grant funds to eligible challenger banks to help them incentivize small business customers to move their accounts and loans from RBS, paid in the form of “dowries” to the receiving bank.

Also, if the uptake among customers looking to switch banks is not enough, the bank will provide £50 million more.

In order to administer both the funds, an “Independent Body” will be established that would also coordinate activities between the Royal Bank of Scotland and the challenger banks. A contribution of £20 million would be made to meet the operational expenses.

The package is expected to be launched in the first half of 2018.

The British bank also disclosed that the package is consistent with the £800 million provision it had built in relation to the expected costs.

Our Viewpoint

The bank would now be able to put behind the bailout and look forward to developing its business. Also, it would be able to distribute excess capital to its shareholders, thus enhancing their value.

Shares of Royal Bank of Scotland have gained 24.6% year to date, outperforming the 18.1% rally for the industry it belongs to.

Zacks Rank & Stocks to Consider

Currently, the stock carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space are PNC Financial Services Group (PNC - Free Report) , State Street Corporation (STT - Free Report) and FB Financial Corporation (FBK - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PNC Financial’s Zacks Consensus Estimate for current-year earnings was revised slightly upward for 2017, in the past 60 days. Also, its share price has increased 43.5% in the past 12 months.

State Street’s current-year earnings estimates were revised 3.6% upward, over the past 60 days. Further, the company’s shares have gained 35.4% in a year.

FB Financial’s Zacks Consensus Estimate for current-year earnings was revised 2.7% upward, over the last 60 days. Moreover, in the past year, its shares have gained 72.5%.

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