In a pre-close trading update today, RBS said its full-year profits would be ‘well ahead’ of market consensus of £9.8bn, despite the costs of its ABN bid and despite its losses from the US sub-prime debacle. Sir Fred said the bank’s ‘consistently strong performance’ was all down to the ‘diversity and quality of the Group’s business platform’.
Beating Barclays to ABN may have been a costly business, but integration is going so well that the takeover is likely to produce even better financial returns than originally expected, 'Fred the Shred' also crowed this morning.
The bank’s size and strong retail business has been a major factor in its continued success: according to the BBC’s Robert Peston, it’s taken deposits of about £800m in recent months as customers shift their money out of the likes of Northern Rock and into a bank that’s perceived to be more stable.
Of course, RBS has not been able to escape the ordure in the financial markets entirely. It said today that it’s had to write off about £950m from the value of its own sub-prime mortgage-related exposure, plus a further £300m from ABN. It’s also taken a further £250m hit from its exposure to loans relating to private equity deals, meaning a total write-down of £1.5bn across the group - less than the £1.9bn some were predicting (and offset by a £250m mark-down on the value of its own debts).
The bad news may not be over yet. The bank still has over £5bn tied up in sub-prime related CDOs and the like, so further write-downs may be necessary at some point. And as one of the biggest lenders to private equity, the fact that the large buyout market seems to have ground to a halt isn’t good news either.
But in the circumstances it was a pretty reassuring update from Sir Fred today. After the year the bank has had, delivering £10bn+ record profits is not to be sniffed at...