RBS adds to woes with record loss

RBS has finished the first half £691m in the red, completing a grim week for UK banks...

Last Updated: 31 Aug 2010

Royal Bank of Scotland said this morning that it made a pre-tax loss of £691m in the first half of this year – the second worst result ever by a British bank, and the first time it’s recorded a loss in 40 years as a public company. When you consider that this time last year it made a profit of £5bn, you get some idea of quite how disastrous 2008 has been for the UK banking giant. ‘It has been a chastening experience and reporting a pre-tax loss of £691m is something I and my colleagues regret very much,’ said penitent RBS boss Sir Fred Goodwin this morning.

The major reason for this dismal showing was of course the eye-watering losses RBS has made on assets linked to the US sub-prime market – these losses totalled almost £6bn during the period. Charges on bad loans were also up, to £1.5bn. And as we predicted yesterday, last year’s costly acquisition of Dutch bank ABN AMRO has only made matters worse: although Goodwin said integration plans were ahead of schedule, the deal increased the bank’s exposure to all that toxic US debt, widening its losses. In retrospect, ‘Fred the Shred’ might be forgiven for wishing he hadn’t bothered.

On the other hand, the numbers weren’t quite as bad as many people feared (some of the gloomier analysts were predicting losses twice as bad as this – hence the small up-tick in the share price this morning). If you strip out all the credit market write-downs (a big ask, admittedly), the underlying business actually ended the period £5.1bn in profit, roughly the same as last year. It’s also gradually (but painfully) de-leveraging, i.e. scaling down its risky assets. And at least it avoided the ignominy of recording the worst ever result – that dubious honour still belongs to Lloyds, which racked up losses of £715m back in the 1980s (after losing its shirt in Latin America). Small mercies, and all that…

Another positive is that RBS managed to successfully complete a £12bn rights issue, boosting its balance sheet to somewhere near target levels. But this brings its own pressures, as Goodwin acknowledged today. ‘We are acutely aware that we drew heavily on our shareholders for financial support and we recognise that we must now deliver a level of performance that meets their expectations for the company and restores value to our shares.’ In other words, unless he can pull the share price out of the fire, he’s toast...

In today's bulletin: 
RBS adds to woes with record loss
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