RBS considers £10bn debt buy-back

RBS could buy back £10bn of debt in an attempt to boost its capital strength and its standing with bond investors.

The vast capital restructuring could involve at least £10bn of the bank's £28bn of debt being bought back at a premium to current prices, the Financial Times reports.

This would mirror moves by other European banks, most notably Lloyds TSB, which unveiled a £10bn deal as part of a £23.5bn capital restructuring in December last year.

RBS is examining which instruments it should make cash tenders for and those to exchange into new coupon-paying paper, hybrid contingent capital notes (CoCos) . The bank needs to maintain a good relationship with bond investors because of large ongoing funding needs.

Up to £13bn of tier 2 debt is likely to be restructured first, according to people close to the bank.

Payment of interest on existing RBS debt, unless contractually obligatory, has been banned for two years, under the terms of the European Commission's state aid ruling late last year.

The ban starts at the end of next month, meaning that any restructuring would have to be in place before then. Holders of the £10bn of RBS's discretionary coupon bonds will be among the keenest to see a buy-out.

Although RBS has relatively high capital ratios at the moment - including a core tier one ratio, measuring the best quality of capital, of 11% - it needs to maintain a buffer to absorb ongoing losses.