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
News
Keith Fraser says we should give Isis sympathises free flights to join Isis (AFP)
news
Life and Style
Google celebrates the 126th anniversary of the Eiffel Tower opening its doors to the public for the first time
techGoogle celebrates Paris's iconic landmark, which opened to the public 126 years ago today
News
Cleopatra the tortoise suffers from a painful disease that causes her shell to disintegrate; her new prosthetic one has been custom-made for her using 3D printing technology
newsCleopatra had been suffering from 'pyramiding'
News
people
Arts and Entertainment
Coachella and Lollapalooza festivals have both listed the selfie stick devices as “prohibited items”
music
Sport
Nigel Owens was targeted on Twitter because of his sexuality during the Six Nations finale between England and France earlier this month
rugbyReferee Nigel Owens on coming out, and homophobic Twitter abuse
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Client Services Assistant

£18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor