Bad debts at RBS 'could soar to £12bn'

Bad debts at part-nationalised Royal Bank of Scotland could soar to almost £12 billion this year, the bank said today.

RBS, which is 70-per-cent-owned by the taxpayer, posted loans losses of £2.9 billion for the first quarter of 2009 but directors said full-year bad debts could be "at least" four times as high.

The warning came as chief executive Stephen Hester sought to dampen expectations of a swift recovery, saying he had seen no "green shoots" on sour loans and that this year and next would be "very tough".

The downbeat comments - a day after fellow struggler Lloyds Banking Group said bad debts could jump more than 50 per cent - underlines the growing impact of recession on banks even though the danger of collapse has passed.

RBS posted a pre-tax loss of £44 million as record income driven by its buoyant investment banking business was offset by the group's surge in bad debts and the squeeze of record low interest rates on margins.

After tax, dividend payouts to the Government, and payments to partners on the sale of its Bank of China stake, losses widened much further to £857 million.

Under this measure, RBS posted a UK record £24.1 billion loss last year after writing off more than £16 billion on its disastrous deal for Dutch bank ABN Amro.

Markets had been braced for much worse and shares in RBS soared 14 per cent, but Mr Hester warned against over-exuberance - saying the bank's path back to health "will take years not months".

"I think it is very important that people do not get carried away in the short term with over-optimism," he said.

The chief executive, who is undertaking a mammoth restructuring of the bank to shrink the RBS and reduce its risks, also declined to predict when the bank would return to profit.

"It's not really in our hands, it's in the hands of the economy and what it does to our loan books," he said.

The uncertainty of last year's banking crisis had given way to a "severe but recognisable" recession, Mr Hester said.

The figures showed investment banking impairments reached £1.37 billion, while commercial and retail banking loan losses more than doubled to £1.46 billion.

A further £2.1 billion hit from credit market losses sent total impairment to almost £5 billion.

The £2.9 billion in bad debt charges compared with just £656 million a year earlier in the tougher economic climate for both businesses and consumers. Impairment charges as a percentage of its loans rose to 1.33 per cent in the first quarter.

RBS is insuring more than £300 billion of toxic debts in a taxpayer-backed insurance scheme but is liable for the first £19.5 billion of any loss.

The bank said it expected up to 85 per cent of the impairments and credit market losses announced today to count towards its first loss - meaning the bank will already have burnt through about £4 billion of its buffer.

Last month RBS announced up to 9,000 job cuts - half of which will fall in the UK - bringing the total axed in December to more than 15,000.

Mr Hester, who completed the clear-out of senior directors from former chief executive Sir Fred Goodwin's regime this week, said more cuts were on the way, but declined to give further details.

"We would expect the overwhelming majority of what we need to do to be carried out over this year and next, but sadly we're not finished yet," he said.

Richard Hunter, head of equities at Hargreaves Lansdown, said: "RBS is a radically different organisation from just a year ago. A 70 per cent-plus gain in the share price over the last three months underlines investors' new found trust in management and the bank's future.

"Nonetheless, management itself is stressing the magnitude of the task ahead, with the bank's future being closely tied to that of the UK economy."

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there