RBS loses another £850m as bad debts mount

Remarkably, RBS made a record £9.7bn last quarter - yet still ended up losing the best part of £1bn.

Last Updated: 31 Aug 2010

Some strange results from RBS this morning: the part-nationalised bank posted record revenues of £9.7bn for the first three months of the year, driven by a strong showing from its investment banking division. But don’t get too excited – thanks to almost £5bn of write-downs on dodgy investments and bad loans, RBS still finished the quarter £857m in the red. And new boss Stephen Hester, who’s currently giving the failed bank an extremely severe haircut, denied that there were any green shoots to be seen in the fallow banking landscape. In other words, we shouldn’t expect our money back any time soon…

Let’s start with the good news (because we’re nice like that). Across the group, RBS’s quarterly revenue was up 26%, with investment banking revenues almost doubling to £4.3bn (contributing a healthy £2bn to the bottom line). Several bits of this division clearly had a stonking quarter (so good, in fact, that Hester was forced to deny today that he would have to flog them to raise extra cash). So despite falling profits in its retail banking divisions, both in the UK and the US, the bank managed to post a healthy operating profit of about £4bn.

Unfortunately there’s a rather big ‘but’ coming. Total write-downs for the quarter were £4.9bn, including £2.9bn on bad debts as both business and consumers defaulted on loans – around four times last year’s total. This pushed RBS to a total loss of £857m (£44m before tax), following its record £24bn loss last year – and Hester was pretty downbeat today about the chances of a rapid rebound. ‘No-one should be in any doubt that this is a process that will take years not months,’ he warned. ‘Some commentators are beginning to talk about economic recovery; we remain cautious and continue to plan and manage our businesses in the full expectation that both 2009 and 2010 will be very tough years for RBS.’

The RBS share price is up about 14% this morning; after the year it’s had, investors are presumably just relieved that the results aren’t even worse. But Hester admitted that the investment banking division was unlikely to do so well next quarter – and with loan losses continuing to mount, it’s clearly going to burn through at least half of the £19.5bn of losses for which it is liable before the Government back-stop kicks in. So taxpayers will probably be left with an even bigger tab. Admittedly we’ll get a bigger stake too, but that’s not much of a consolation at the moment...

In today's bulletin:

RBS loses another £850m as bad debts mount
Carphone Warehouse scales up with cut-price Tiscali deal
FSB issue ASBOs to bully-boy businesses
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