Royal Bank of Scotland reports steep six-month losses - Summary
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Mon, 18 Aug 2008 08:34
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London - Royal Bank of Scotland (RBS) Friday became the latest British bank to mark the first anniversary of the credit crunch with dismal figures, reporting a pre-tax loss of 691 million pounds (1.38 billion dollars) in the first six months of 2008. Analysts said the losses were the second-biggest in British banking history, exceeded only by Lloyds bank, which in 1989 recorded a 715-million pound loss from massive write-downs on "bad" loans to Latin America. RBS, Britain's second-largest bank, said it was hit by writedowns of 5.9 billion pounds of write-downs after the credit crunch cut the value of many of its mortgages and assets. RBS, which led a consortium taking over Dutch bank ABN Amro last year, had registered a profit of 5 billion pounds in the first six months of 2007, making Friday's year-on-year figure a nearly 5.7- billion-pound turnaround in the wrong direction. Just a year ago, RBS was regarded as one of Britain's most secure and confident banks, but analysts said the Edinburgh-based bank was now paying the price for its ambitious takeover of the Dutch banking giant for 50 billion pounds. "ABN was the wrong deal, at the wrong price, at the wrong time," one analyst said Friday. Analysts said much of the write-down total stemmed from investments at ABN Amro. But like other banks, RBS had suffered from a drop in the value of risky assets and securities, particularly those linked to US subprime mortgages. RBS boss Sir Fred Goodwin described the first-ever losses in RBS' 40-year-history as a public companyas a "chastening experience.""We have steered it (the bank) through good times and we are going to steer it through these difficult times," he said Friday. However, the losses, although enormous, remained below expectations, with some analysts in the City of London's financial district having predicted red ink of up to 1.7 billion pounds. As a result RBS shares rose by 2 per cent on the stock market Friday. RBS became the first British bank to seek financial backing from shareholders through a rights issue earlier this year. Its sale of shares worth 12 billion pounds had met with overwhelming support from shareholders, but also prompted strong criticism of the RBS board by shareholders. "We recognize that we must now deliver a level of performance that meets their expectations for the company and restores value to our shares," a contrite Goodwin said Friday. The remarks were read by one analysts as an admission by Goodwin that he was now living on "borrowed time" at the helm of RBS. On an underlying basis - discounting the effect of the large credit market write-downs - RBS said it made profits of 5.14 billion pounds in the first six months of 2008, compared with 5.32 billion pound in the same period last year. The RBS results conclude a round of disappointing half-yearly results from top British banks this week. Barclays bank reported a 33-per cent drop in pre-tax profits to 2.75 billion pounds, while banking group HSBC said saw its pre-tax profits decline by 28 per cent to 5.2 billion pounds. Northern Rock, the ailing mortgage lender taken under government control in February, reported half-yearly losses of a massive 585 million pounds.
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