RBS signals highest ever losses for UK of £28bn

Jan 20 2009 By Iain Laing, The Journal

SHARES in Royal Bank of Scotland plummeted yesterday after the beleaguered lender revealed it was on course for a record annual loss for a UK company.

RBS shocked the City as it estimated bad debts and the lower value of its acquisitions could leave it as much as £28bn in the red for 2008. This is higher than the £15bn set by mobile phone group Vodafone in 2006.

Shares in the firm, which is 58% owned by the Government, slumped by more than 40% at one point yesterday, leaving the stock at a 23-year low.

RBS said a review of past acquisitions, most notably its share of Dutch bank ABN Amro, would result in a non-cash hit of between £15bn and £20bn. It also expects core losses of between £7bn and £8bn as a result of credit and market conditions in the fourth quarter of the year.

Asked about the record losses, Prime Minister Gordon Brown voiced his anger about the bank’s decision-making, in particular international investments "that were clearly wrong investments".

He added: "Today’s write-off by the Royal Bank of Scotland is for irresponsible losses accumulated in American sub-prime markets that partly derive from the acquisition of the Dutch bank ABN Amro."

However, he refused to say whether action should be taken against former chief executive Sir Fred Goodwin or other senior figures over "irresponsible" behaviour.

RBS also revealed yesterday that the Government would increase its stake in the bank – likely to be around 70% – after the Treasury agreed to replace £5bn of preference shares with new ordinary shares.

The move, which takes RBS a step closer to full-blown nationalisation, removes the annual cost of preference share dividends of £600m and is expected to bolster the group’s cashflow.

It said it intended to increase lending across its UK businesses by £6bn, extending the lending commitment it gave in October in respect of UK mortgage and corporate customers.

Chief executive Stephen Hester, who took over from Sir Fred last year, said the dislocation of credit markets and the economic conditions continued to hit the bank hard. He added: "We are making progress in recognising excess risk and dealing with it.

"In this context, the support we are receiving from Government benefits all our stakeholders and enables us to provide more customer support in return."

The group owns the Citizens commercial bank in the US and has a large investment banking presence in America, while it also operates across Asia and provides a wealth management service, through its private bank Coutts.