Taxpayer to profit from insuring RBS
For me, the most interesting bit of RBS's 303 pages of info on its first half results (a case, I fear, of more is less - lots of duplicated and baffling detail) is the stuff on the asset protection scheme (APS).
This is the insurance contract written by the government to protect RBS against losses greater than £60bn on more than £200bn of poor quality loans and investments.
Now RBS accounts for the contract as though it were a credit derivative.
What this means is that when conditions in the credit market deteriorate, it books a profit on the APS contract. And when they improve, it books a loss.
The logic is that the contract becomes more or less valuable according to perceptions - as reflected in interest rates paid by riskier borrowers relative to those paid by risk-free borrowers - of whether life is becoming easier or tougher for borrowers.
Because it's such a huge contract, the impact of the changing valuation of the contract is material.
In the first quarter of 2010, RBS booked a £500m loss on the APS. But as conditions in credit markets deteriorated (a big hello to the eurozone and its woes) the value of the contract rose for RBS, so it booked a £500m profit.
The corollary, of course, of the rise in the value of the contract for RBS is that it represented a notional loss for taxpayers.
So the chancellor will be relieved that the public sector doesn't use mark-to-market accounting, so he doesn't have to declare this loss.
In fact as and when the APS contract is unwound, the chances are that the public sector - the taxpayer - will be sitting on a fat profit, based on data provided by RBS today.
The amount insured under the contract has fallen from £231bn to £216bn, due largely to "maturities, amortisation and repayments" of loans (yes, some of RBS's troubled borrowers are paying their debts).
More relevantly though. RBS expects to incur just £20bn of losses on some £37bn of loans covered by the scheme where the borrower has gone bankrupt or cannot repay for other reasons.
So for the taxpayer to incur any loss on this insurance contract, RBS would have to suffer more than £40bn of additional losses on the remaining insured loans and investments, which have a gross value of less than £200bn.
Now unless we tip back into severe recession, that looks unlikely to happen.
So the chances are that the taxpayer will pocket the handsome fee for the insurance and never pay out a penny to RBS.