RBS said this morning that it made a pre-tax profit of £15m in the first six months of 2009, boosted by a sterling display from its investment banking division. However, with impairment charges quintupling to a nasty £7.5bn, RBS boss Stephen Hester is refusing to get carried away. In fact, he’s done his best to pour cold water on any recovery expectations by suggesting that the investment banking results will go downhill during the rest of the year, and that the 70%-taxpayer-owned bank won’t really see results improve until 2011. He must be a real treat at parties.
Given that last year RBS reported a £24bn loss, the biggest in UK corporate history, ending the half in the black clearly counts as a step in the right direction – and it was largely down to the investment banking division, which saw profits jump from £1.1bn to £4.9bn year-on-year. However, Hester insisted this was basically a flash in the pan; overall, he said, the results were ‘poor’, with the bank sinking to a net loss of just over £1bn. And for a bank whose core division saw income of nearly £18bn, a £15m profit is minuscule – no more than a couple of good trades (in fact, since the bank was presumably under a lot of pressure to report a return to profits, the cynic might wonder how 'massaged' this number was).
‘There will be no miracle cures,’ Hester moped today. ‘Our task is no less than one of the largest bank restructurings ever done, in the face of strong economic headwinds.’ He’s doing his best to shrink the bank’s balance sheet – assets fell by a massive £574bn in six months, which by our GCSE Maths is over £3bn per day – and he’s been hiving off some of these dodgy loans into the so-called non-core division. But there’s clearly still a lot of ordure left on the books: impairment charges (i.e. its spiralling losses on bad debts) soared from £1.5bn last year to £7.5bn this time around.
Hester is also very aware that his taxpayer funding comes with strings attached. He moaned this morning that commentators ‘variously want us to go back to over-lending, to operate on a ‘not-for-profit’ basis, to never entertain a client and to offer employment conditions that deter the best and brightest. Oh yes, and at the same time to pull off a recovery enabling taxpayers to recoup the support given.’ In other words, he’s saying RBS can’t win either way – some of the things he’s been asked to do actually make its recovery even more difficult.
Then again, since today's figures also showed that its lending to small businesses actually fell in the first half of the year, he might not get much sympathy. He certainly hasn't from the stockmarket: RBS's share price is down 12% this morning...
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