RBS pulls back from Russia and warns on Scottish independence vote
The bank has been careful not to enter the political debate over Scottish independence
James Moore is the Independent's Associate Business Editor and writes the Outlook City comment column from Tuesday to Friday. He also has a keen interest in disability issues and when not attempting to further injure himself playing wheelchair basketball.
Saturday 02 August 2014
Royal Bank of Scotland has cut lending to Russia and imposed credit restrictions as the US and EU crank up sanctions against Moscow over its support for pro-Russian separatist rebels operating in Ukraine.
Releasing its half-year results a week after the early release of unexpectedly good preliminary figures, the bank said lending in Russia had fallen by £100m to £1.8bn, including £900m in corporate loans and a further £600m of lending to banks.
The bank put its total exposure to the country, including assets held by clients, at £2.1bn. It also has “uncollateralised derivative positions” with certain Russian banks.
“Following developments in Ukraine, ratings were reviewed, limits adjusted and additional credit restrictions placed on new business. Exposures are also reviewed against any international sanctions,” the bank declared in its results statement.
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On Thursday the EU tightened sanctions in an attempt to increase the pressure on Russia’s Vladimir Putin over his policy in Ukraine.
Other European banks, including France’s Natixis and Société Générale, have also cut their exposure, while the sportswear manufacturer Adidas has closed stores. Lufthansa and Volkswagen have warned of hits to their profits this week.
RBS last week reported pre- tax profits of £2.6bn – better than analysts had expected as bad debts fell by £1.9bn to £269m and the performance of its internal “bad bank” improved markedly. Yesterday, however, the bank also included a stark warning about the potential impact on its business of Scottish independence, just weeks before the referendum. It first voiced concerns about the outcome of the 18 September poll in its February annual report.
Although RBS has been careful to state that the decision is one for the Scottish people, yesterday’s cautionary statement is significant coming so close to decision day.
The bank said: “Uncertainties resulting from an affirmative vote ... would be likely to significantly impact the group’s credit ratings and could also impact the fiscal, monetary, legal and regulatory landscape to which the group is subject.
“Were Scotland to become independent, it may also affect Scotland’s status in the EU. The occurrence of any of the impacts above could significant impact the group’s costs and would have a material adverse effect on the group’s business, financial conditions, results of operations and prospects.”
A number of Scottish businesses, including some of the country’s most prestigious, have voiced similar fears. The life insurer Standard Life has warned it could shift some operations south of the border in the event of a “yes” vote. That could include the Edinburgh HQ.
The Bank of England’s Governor, Mark Carney, told the Treasury committee in March there was a “distinct possibility” that a yes vote would force RBS to relocate too.
Separately, RBS again warned that the Government’s refusal to allow it to pay bonuses of 200 per cent of bankers’ salaries could harm its business. The refusal means it is unable to secure the majority of shareholders required to pay bonuses at that level under the EU’s cap. RBS can only pay 100 per cent.
The bank was briefly the toast of the industry after it hurried out its results, but Ian Gordon, an analyst at Investec, yesterday played party pooper, urging investors to “sell”. He said: “We believe that investors should again feel able to short the stock with confidence. We continue to forecast negative earnings through the third and fourth quarters of 2014 and anaemic returns through 2014-2017.”
The shares ended down 5.3p at 350p.
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