Bank chalks up its first loss

Click to follow
The Independent Online

Royal Bank of Scotland today unveiled its first loss in 40 years as a public company after suffering writedowns of £5.9 billion.

The group reported statutory pre-tax losses of £692 million for the six months to 30 June - which compares with profits of £5 billion the previous year.

Chief executive Sir Fred Goodwin, who was forced to launched a £12 billion rights issue earlier this year to shore up the firm's balance sheet, said the loss was a "chastening experience" that "I and my colleagues regret very much".

NatWest owner RBS had already alerted investors to a £5.9 billion credit crunch writedown when it launched the rights issue in April.

Sir Fred said: "This loss is a consequence of previously signalled writedowns on credit market exposures amounting to £5.9 billion.

"In response to these new market conditions we moved decisively to strengthen our capital position materially.

"In so doing we are acutely aware that we drew heavily on our shareholders for financial support and we recognise that we must now deliver a level of performance that meets their expectations for the company and restores value to our shares. We are determined to do so, and this is our focus."

The group last year led a consortium that bought Dutch bank ABN-Amro for nearly £50 billion.

RBS's pro-forma loss for the six months this year, which assumes that ABN-Amro had been bought on January 1, 2007 and is used by management to compare progress over the period, was £691 million.

On the pro-forma basis, the group said its capital ratios - a measure of how strong the balance sheet is - were ahead of target. The core Tier 1 ratio was 5.7 per cent, compared with a 5 per cent target.

The bank said it has increased its bad debt charge by 58 per cent to £1.48 billion, representing 0.46 per cent of loans and advances.

Management was seeing "some increased strains" particularly among small business clients, it added, but has been offset by reductions in losses among personal unsecured debts thanks to a "conservative approach" to this sector in recent years.

Net interest income increased 30% during the period to £7.56 billion. The loss stemmed from the £5.9 billion writedown, RBS said.

Sir Fred added: "The first half of 2008 has been as difficult an operating environment as we have encountered for some time, presenting both general and specific challenges to RBS.

"The results we have published today demonstrate progress in a number of important areas, and it is all the more unsatisfactory, therefore, that they record a loss as a result of our credit market writedowns."

Banking analyst Ralph Silva said RBS chairman Sir Tom McKillop could be forced out as a result of the loss.

Mr Silva, from the Tower Group, said on the BBC Radio 4 Today programme: "I do feel there will be some victims.

"Maybe the chairman, Sir Tom McKillop, probably will be the one that will have to fall on his sword, and simply because the CEO, Sir Fred Goodwin... removing him would be too disruptive to the organisation at this time and it's just not responsible to do so.

"So if the investors want someone's head they will probably go after the chairman's."

Mr Silva blamed the wider economic downturn for the RBS results.

He said "I think RBS is unique in one area in that they are very dependent on the investment banking industry, whereas the other high street banks don't have that much of a reliance on it.

"We really have two issues at hand here. We have a sub-prime issue, and RBS is still suffering from a sub-prime issue.

"But we have a second issue, which is more important - we have a slowdown in the economy, they are just simply not getting enough business coming in the front door to remain profitable.

"And that's really the struggle with the British banks at this time."