RBS Plunges to Record $34.3b Loss in 2008
LONDON Royal Bank of Scotland reported the biggest loss in British history on Thursday and said the government’s stake could rise as high as 95 per cent after it stumped up billions to insure risky bank assets.
RBS said it made a £24.1 billion ($34.3 billion) loss last year, the biggest deficit in British corporate history.
RBS said the Treasury would inject a further £13 billion to help the bank pay for a new scheme that will transfer most of the risk from £325 billion worth of toxic RBS assets and risky loans to the taxpayer.
The so-called Asset Protection Scheme launched by the British Treasury on Thursday is expected to insure well over £500 billion ($712 billion) worth of assets by the time other banks have signed up to it.
Banks around the world have trillions of dollars of potential losses on their books after the collapse of the US property market triggered a credit crunch and then a full-blown global financial crisis.
Hiving off troubled assets and purging banks of their worst liabilities will be a focal point of discussion at next month’s meeting of G20 finance ministers and central bankers in Britain.
So far, there has been little consensus and international meetings earlier this month simply had to agree on looking at a common set of principles.
Surpassing a £21.8 billion loss by Vodafone in 2006, the deficit represents 16.2 billion in write-downs against RBS’ acquisitions, including its 2007 takeover of parts of ABN Amro, and £7.9 billion in operating losses.
RBS shares, which have lost 95 per cent of their value since early 2007, were up 22.9 per cent at 29.4 pence by 1307 GMT, while the FTSE 100 share index was 1 per cent higher. UK gilt prices fell sharply.
“The favourable pricing of the asset protection scheme, along with the additional capital injection from the government, will remove the immediate capital concerns about RBS,” Panmure Gordon analyst Sandy Chen wrote in a note to clients.
“For now, the markets will probably focus on the favourable terms of this bailout.”
Shares in Lloyds Banking Group were up 25 per cent ahead of its results on Friday when the bank is also expected to sign up to the insurance package.
Lloyds said on Thursday that it was in talks with the Treasury about participating but that there was no certainty its involvement would be on the same terms as RBS.
RBS also unveiled plans to cut £2.5 billion ($3.56 billion) in costs as part of a restructuring plan which will see it exit or reduce its presence in 36 of the 54 countries it operates in.
“The £2.5 billion cost-base cuts will translate into tens of thousands of job cuts,” said Martin Slaney, head of derivatives at GFT.
RBS chief executive Stephen Hester said the key building blocks for recovery were now in place with the insurance scheme providing the necessary stability to restructure.
“That doesn’t mean we will recover successfully, there’s a massive amount of hard work to do and obstacles to overcome, but we now have the job of execution,” Hester told reporters on a conference call.
Hester said he did not dissent with speculation that the number of job cuts at the bank could be as high as 20,000.
Under the insurance scheme, RBS will pay a 6.5 billion pound signing up fee and be responsible for the first 19.5 billion pounds of any losses. The taxpayer will be liable for 90 per cent of any losses above and beyond that.
RBS said it made a £24.1 billion ($34.3 billion) loss last year, the biggest deficit in British corporate history.
RBS said the Treasury would inject a further £13 billion to help the bank pay for a new scheme that will transfer most of the risk from £325 billion worth of toxic RBS assets and risky loans to the taxpayer.
The so-called Asset Protection Scheme launched by the British Treasury on Thursday is expected to insure well over £500 billion ($712 billion) worth of assets by the time other banks have signed up to it.
Banks around the world have trillions of dollars of potential losses on their books after the collapse of the US property market triggered a credit crunch and then a full-blown global financial crisis.
Hiving off troubled assets and purging banks of their worst liabilities will be a focal point of discussion at next month’s meeting of G20 finance ministers and central bankers in Britain.
So far, there has been little consensus and international meetings earlier this month simply had to agree on looking at a common set of principles.
Surpassing a £21.8 billion loss by Vodafone in 2006, the deficit represents 16.2 billion in write-downs against RBS’ acquisitions, including its 2007 takeover of parts of ABN Amro, and £7.9 billion in operating losses.
RBS shares, which have lost 95 per cent of their value since early 2007, were up 22.9 per cent at 29.4 pence by 1307 GMT, while the FTSE 100 share index was 1 per cent higher. UK gilt prices fell sharply.
“The favourable pricing of the asset protection scheme, along with the additional capital injection from the government, will remove the immediate capital concerns about RBS,” Panmure Gordon analyst Sandy Chen wrote in a note to clients.
“For now, the markets will probably focus on the favourable terms of this bailout.”
Shares in Lloyds Banking Group were up 25 per cent ahead of its results on Friday when the bank is also expected to sign up to the insurance package.
Lloyds said on Thursday that it was in talks with the Treasury about participating but that there was no certainty its involvement would be on the same terms as RBS.
RBS also unveiled plans to cut £2.5 billion ($3.56 billion) in costs as part of a restructuring plan which will see it exit or reduce its presence in 36 of the 54 countries it operates in.
“The £2.5 billion cost-base cuts will translate into tens of thousands of job cuts,” said Martin Slaney, head of derivatives at GFT.
RBS chief executive Stephen Hester said the key building blocks for recovery were now in place with the insurance scheme providing the necessary stability to restructure.
“That doesn’t mean we will recover successfully, there’s a massive amount of hard work to do and obstacles to overcome, but we now have the job of execution,” Hester told reporters on a conference call.
Hester said he did not dissent with speculation that the number of job cuts at the bank could be as high as 20,000.
Under the insurance scheme, RBS will pay a 6.5 billion pound signing up fee and be responsible for the first 19.5 billion pounds of any losses. The taxpayer will be liable for 90 per cent of any losses above and beyond that.
source: OMAN TRIBUNE
