Sir Fred Goodwin hit back yesterday at analysts who accused Royal Bank of Scotland of having a capital shortfall as his bank announced a rise in profits and a dividend increase, despite bigger writedowns from the credit crisis.
The RBS chief executive also defended its acquisition of ABN Amro and said increased gains from the deal would help rebuild the bank's capital ratios faster than expected. Annual operating profits at Britain's second biggest bank rose by 9 per cent to £10.3bn and its full-year dividend was up by 10 per cent to 33.2p.
The bank's ratio of tier-one capital to risk-weighted assets was 7.3 per cent and its core tier-one ratio was 4.5 per cent – above the accepted minimum of 4 per cent and higher than many analysts predicted.
RBS's share price has been plagued by concerns that its depleted capital buffer against unexpected losses could force it to cut the dividend or raise cash from shareholders. Analysts had calculated that for RBS's equity tier-one ratio to match the average for European lenders it would have to launch a £12.5bn rights issue.
Sir Fred said: "The capital ratios are there. If you want to go and make up your own, feel free... It becomes a bit difficult to have a reasonable and rational conversation when people invent their own ratios."
Investors have been concerned that large additional writedowns on assets hit by the credit crisis could leave RBS's capital position exposed. RBS raised its writedown from the impact of the US sub-prime crisis and credit crunch to £1.6bn, excluding ABN, up from an estimate of £1.2bn in December. Gains on asset disposals last year, including Southern Water, largely offset the impact of the writedowns.
Yesterday, some were still questioning RBS's calculations and ratios. Sir Fred said regulators and rating agencies looked not just at ratios but at the bank's business and the quality of its assets.
"The real protection we have is our profits. You only get to the capital when you have obliterated profits."
A consortium led by RBS bought ABN Amro in November for €71bn (£54bn) in a deal that rivals said was too expensive. Yesterday, RBS raised its expected cost and revenue gains from ABN to €2.3bn from €1.7bn. Sir Fred said there was no "silver bullet" and that cost cuts would come from "mundane" items such as stationery.
The increased write-down at RBS was mainly due to a £456m markdown on its exposure to troubled US bond insurers, which could leave some insurance hedges ineffective. The charge on the income statement was reduced to £1.16bn by gains on the reduced value of RBS's debt.
RBS also marked down the fair value of ABN's wholesale businesses by £978m, though this figure went through the bank's balance sheet and did not come out of its profit.
RBS shares fell 1.95 per cent to 402p. The shares have rallied in recent weeks but are still down 9.5 per cent so far this year.Reuse content