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UK set to profit on toxic bank assets scheme

LONDON (Reuters) - The British taxpayer should make a healthy profit from an insurance scheme set up to handle billions of pounds worth of toxic bank assets, the head of the body organising the scheme told Reuters on Thursday.

The Asset Protection Agency -- which insures some 230 billion pounds worth of risky assets held by Royal Bank of Scotland -- was set up last December under pressure from regulators.

“I’ve previously said I was hoping the taxpayer would end up with a profit. I’m now saying I’m confident the taxpayer will end up with a profit, with a 90 percent chance of success,” Stephan Wilcke, the head of the Asset Protection Agency, said in a telephone interview.

The APA, which runs the insurance set-up, said in its annual report on Thursday that the taxpayer should end up with a profit of 5 billion pounds from the scheme.

The Treasury has already received 2.5 billion pounds for the scheme’s management of risky assets held by Lloyds Banking Group, and the APA said the Treasury should get a further 2.5 billion pounds for handling the RBS assets.

As of March 31 this year there were 230.9 billion pounds of risky RBS assets covered by the asset protection scheme.

The cover for those assets operates like a conventional insurance policy. If RBS’s assets fall in value the bank will absorb the first 60 billion pounds of losses.

Any further losses will be shared by RBS and the government with RBS taking 10 percent of the loss and the government taking 90 percent.

Wilcke was confident that the losses on the RBS portfolio would not exceed the 60 billion mark. The Asset Protection Agency currently estimates a lifetime expected loss of 57 billion pounds on the portfolio.

“The taxpayer collects in the fees and he won’t have to pay out on the liabilities,” he said.

He added, however, that the current financial market uncertainty was making it difficult to sell parts of that RBS portfolio.

Wilcke took up his job at the Asset Protection Agency last year after joining from credit asset manager Cairn Capital. He was also formerly a partner at private equity firm Apax Partners and financial services consultancy Oliver Wyman.

He was paid a salary of 150,000 pounds for his work at the APA during the course of the last year.

Editing by Greg Mahlich