'No miracles' warning as bank shares slump

Royal Bank of Scotland boss Stephen Hester today warned the part-nationalised bank's long haul back to health had only just begun as shares in the firm tumbled.

RBS - 70 per cent owned by the taxpayer - edged back into the black with a £15 million pre-tax profit for the first half of 2009, but Mr Hester said results may not "substantially improve" until 2011.

By 2013, the chief executive wants to slash the bank's reliance on wholesale funding by £150 million, improve its flagging credit rating and ensure loans are covered by deposits.

But Mr Hester added: "There will be no miracle cures. Our task is no less than one of the largest bank restructurings ever done, in the face of strong economic headwinds," he said.

Shares in the NatWest owner had risen strongly in the run-up to today's results - briefly giving the taxpayer a paper profit on its £20 billion investment - but slumped as much as 16 per cent following the figures.



Every penny the shares fall below the 50.5p average price paid by the Government costs the taxpayer almost £400 million.

After tax and other payouts such as dividends on the preference shares which were held by the Government, RBS slid to a net loss of £1 billion. Bad debt charges across the overall group hit £7.5 billion.

The figures mark a gloomy end to a week which began with £6 billion in combined profits from HSBC and Barclays.

Lloyds Banking Group posted a £4 billion loss after a £13.4 billion hit from bad debts, while Northern Rock lost £724 million in the first half of 2009.

Richard Hunter, head of UK equities at stockbroker Hargreaves Lansdown, said: "After an extremely promising start, the half-time banking reporting season has ended in some ignominy.

"It is difficult to draw many positives from these numbers, which even RBS management have conceded are poor."

Stephen Timms, Financial Secretary to the Treasury, said the bank would be successful "in due course".

"That will be reflected in the share price in due course and there will then be a benefit for taxpayers from the investment that's been made....

"But I think rescuing the bank from collapse was a very important step as well, to protect the interests of all of us."

Mr Hester, who is on a £9.6 million pay and shares package to turn RBS around, is shrinking the bank's bloated balance sheet.

He is splitting the group into unwanted parts which would be wound up or sold, and those businesses which will be kept on.

The "core" bank made operating profits of £6.3 billion in the first half of the year, Mr Hester said, helped by a "creditable rebound" in the group's investment banking business. The non-core business lost £9.6 billion.

But the surge in investment banking business which helped the bank is not expected to be sustained, while it has also been hindered by an exodus of its best staff.

"We know to our cost, having suffered significant resignations of valuable staff members this year, that we cannot ignore competitor pay practices or we will fail as a business," Mr Hester said.

The bank is still in talks over putting £316 billion worth of toxic bad debts in a taxpayer-backed insurance scheme - for which it will bear the first £19.5 billion in losses.

The complex negotiations over its participation in the Asset Protection Scheme are subject to state aid approval from the European Union and are unlikely to be completed before the autumn.

The group's UK retail banking business, which includes NatWest, saw bad debt charges jump 87% to £824 million, causing a 90% slump in operating profits to £53 million.

RBS has shed 16,000 staff since last October, of whom 10,000 have been in the UK.

But Mr Hester said he was optimistic over the bank's long-term prospects despite the task ahead.

He said: "The 'new RBS' will be a very different bank than before, in both what we do and the way we do it, and rightly so."

Panmure Gordon analyst Sandy Chen said: "Management is doing the right thing in undertaking a radical restructuring of the group, but it is burdened with a balance sheet built up under very different macro (economic) conditions."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea