RBS plunges into red as buffer billions broached

Nov 7 2009 by Iain Laing, The Journal

ROYAL Bank of Scotland has posted a £2.1bn plunge into the red and revealed it has already eaten through nearly half the £60bn “excess” on toxic debts insured by the taxpayer.

The part-nationalised bank unveiled a pre-tax loss of £2.1bn for July-September, down from a £1.9bn profit a year earlier, as it amasses credit losses in parts of the business it is winding down or selling, although bad debt charges are stabilising.

And after agreeing this week to put £282bn in bad loans into the Asset Protection Scheme (APS), under which it shoulders the first £60bn in losses on the debts, it revealed it had already used £26.6bn of the buffer by the end of June.

A further £3.2bn in loan losses announced for the third quarter – mostly on APS assets – is likely to take RBS’s “first loss” close to £30bn.

RBS is now 84% owned by the state and the taxpayer is liable for 90% of any hit above the £60bn under the APS, although the recent tentative signs of improvement make losses less likely. RBS is taking a bigger first loss than originally planned under the APS in return for a smaller fee.

Chief executive Stephen Hester, who hopes to return the bank to profit in 2011, said yesterday he was upbeat but realistic about the tough road ahead for RBS.

The bank said bad debts were plateauing but Mr Hester warned: “We owe it to everyone to be realistic and transparent.”