RBS posts first-ever loss after £5.9bn in write-offs

Click to follow
The Independent Online

Sir Fred Goodwin, the chief executive of Royal Bank of Scotland, said yesterday he intended to stay in his job after announcing a first-half loss of £691m that had left him "numbed".

RBS posted the second-biggest six-month loss ever by a UK bank after taking £5.93bn of writedowns on assets hit by the credit crunch. The performance was better than expectations, which had predicted a loss of up to £1.7bn, partly because RBS made £812m of gains on the value of its own debt.

Sir Fred said: "I am very disappointed and numbed by it. It is a very unsatisfactory situation made all the more so by the shadow it casts over the very good performance of some of our businesses.

"It is my determination to get us out of all this. I won't do this job for ever but right now I'm extremely galvanised by the task in hand."

The record for a British banking loss in a half-year is still held by Lloyds, which managed to lose £715m – or £1.32bn accounting for inflation – in 1989.

Some investors have called for Sir Fred's resignation, blaming him for pressing on with the €71bn (£55bn) takeover of ABN Amro last year despite the market dislocation. ABN left RBS's capital ratios depleted and was responsible for about a third of the first-half writedowns.

RBS announced a £12bn rights issue in April to boost its thin capital buffer after saying only two months earlier that it would not need to do so. At the same time, it predicted the £5.9bn of writedowns for the first half.

The bank said it had got rid of £108bn of assets from its Global Banking and Markets business in the first half to reduce the risk of its balance sheet and boost capital ratios. The asset reduction accelerated after the first quarter, with £157bn cut since March.

"The balance sheet was too large for the individual bank that we are and too large for current markets," Sir Fred said. He said RBS had to balance its desire to shrink the balance sheet with the need to support customers. "If you go cold turkey on lending to the market your capital ratios [rise] but people have long memories. We are open for business."

He said he had no regrets about buying ABN Amro and that even if the business did not grow it would add £2.3bn of annual profit for the £10bn RBS paid for its portion of the break-up deal. He said that cost and revenue gains from the deal were coming through faster and would probably be bigger than the £1.65bn predicted.

RBS is aiming for an equity tier one ratio – which measures the bank's top-quality capital – of at least 6 per cent by the end of the year, up from about 4 per cent before the rights issue. The ratio at the end of the first half was 5.7 per cent, ahead of plan, and the money from selling half of Tesco Personal Finance to Tesco will take it to 5.8 per cent.

Sir Fred said the quicker capital accumulation meant there was less pressure to sell RBS Insurance, which the bank put up for sale when the rights issue was announced. He said the business was still for sale and that buyers were interested but that the business would not be sold for a knock-down price.

Sir Fred said the economic outlook was increasingly gloomy and that consensus forecasts for 1.5 per cent growth in the UK and the US this year looked optimistic. "If we could bank those [growth rates] now we would," he admitted.

Excluding the writedowns and other one-off items, profit fell 3 per cent to £5.1bn. Global Banking and Markets income fell 10 per cent as booming business in interest rates, currencies and commodities helped make up for dead credit markets. Impairment losses at the business jumped to £294m from £9m a year earlier.

UK retail and commercial banking profit rose 8 per cent to £2.1bn. Impairment losses at the business fell by £12m to £694m but are set to rise as the economy slows.

The bank's shares rose 3.2 per cent to 240.5p.

Comments