Further incompetence at RBS

Published 19th Jan 2009

RBS's £28 billion losses blamed on reckless lending to foreign borrowers

Royal Bank of Scotland confirmed it was on course to lose up to £28 billion in the past year - the biggest loss in UK corporate history.

The bank admitted it had lost between £7 and £8 billion on complex mortgage back securities - the so-called sub-prime market.

In addition, a review of past acquisitions, most notably RBS's share of Dutch bank ABN Amro, would result in a hit of up to £20 billion.

The final haul will easily exceed the deficit of £15 billion reported by mobile phone group Vodafone in 2006.

RBS also said it had reached agreement with the Treasury to replace £5 billion of preference shares with new ordinary shares, taking the Government's stake in the bank from 58 to 70 per cent.

Chief executive Stephen Hester, who took over from Sir Fred Goodwin towards the end of 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.'

As well as the core losses of between £7 billion and £8 billion, RBS said preliminary estimates pointed to an estimated write-down in the region of £15 billion to £20 billion. RBS stressed this was a non-cash item and had no bearing on its regulatory capital position.

It added that its retail and commercial banking businesses in the UK remained profitable, offset by losses in its global banking and markets division.

The group owns the Citizens commercial bank in the U.S. 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.

RBS will convert the £5billion of preference shares it has sold to the Treasury into ordinary shares, taking the Government's stake in the bank to 70 per cent

It gained a chunk of ABN Amro's European and global assets when it led a consortium takeover of the Dutch bank last year.

RBS shares this morning dropped almost 20 per cent in London trading, their lowest value since at least September 1988.

The shares have slumped about 90 per cent in the past 12 months.

RBS, which also owns NatWest, has been in crisis since posting a £691million loss last summer - the second-largest in British banking history.

It is already 58 per cent owned by the state following last autumn's £20billion bail-out from the Government.



Today the deal goes through to rescue HBOS, the biggest mortgage lender, by Lloyds TSB, creating the UK's biggest retail bank.

It will be known as Lloyds Banking Group. This follows a week in which the value of the big five High Street banks plummeted by £28.7billion.

Experts had warned that the banks - traditionally the powerhouse of the economy - are technically insolvent and 'living on a prayer'.

The Government might also revise the business plan for Northern Rock to allow the state-owned mortgage bank to make more new loans.


London-based billionaire Leonid Blavatnik owns the chemical giant LyondellBasell, which is on the verge of collapse.

Gordon Brown was said to be furious after Treasury officials found details of the loan in RBS's books. The taxpayer was forced to write off Leonard Blavatnik's £2.5bn loan

The money was lent to 51-year-old Mr Blavatnik by the Dutch bank ABN Amro, which was taken over by RBS when Sir Fred Goodwin was chief executive. He was forced to quit in October after claims that his reckless expansion strategy was responsible for bringing RBS to its knees.

Russian-born Mr Blavatnik splits his time between New York and his £41million home in Kensington, West London.

This month, it was announced that LyondellBasell was teetering on the edge of bankruptcy with £18billion debts.

Source: ' Daily Mail '

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