• Lender makes payment to retire Britain's dividend access share
  • Latest step toward RBS returning capital to shareholders

Royal Bank of Scotland Group Plc and the U.K. government agreed to scrap the state’s rights to preferential dividends, paving the way for the bank to return capital to shareholders as early as next year.

The bank paid 1.2 billion pounds ($1.7 billion) to the Treasury to retire Britain’s so-called dividend access share, the Edinburgh-based lender said in a statement on Tuesday. The payment will reduce the bank’s tangible net asset value per share by about 10 pence in the first quarter and would have lowered its common equity Tier 1 capital ratio, a measure of financial strength, by about 50 basis points at the end of 2015. 

Chief Executive Officer Ross McEwan, 58, is checking off another item from an extensive list of issues he must overcome to help Chancellor of the Exchequer George Osborne return the bank to full private ownership and pay a dividend. McEwan has pledged to return capital to shareholders next year once the bank has reached a deal with U.S. authorities over the sale of mortgage-backed securities, passed stress tests from the Bank of England and agreed to sell its Williams & Glyn consumer bank.

“This is another important milestone in our plan to resume capital distributions to our shareholders,” McEwan said in the statement. “On the back of progress we have made in strengthening the bank’s balance sheet in recent years, I am pleased that we are today able to repay the U.K. government 1.2 billion pounds to finally retire the dividend access share.”

The DAS was issued in 2009 when the U.K. Treasury provided 25.5 billion pounds of equity capital to RBS to help save it from collapse and gave the state enhanced dividend rights for the support it provided. RBS had already paid 320 million pounds toward canceling the DAS in 2014.

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