Britannia Radio

It is instructive to note that financial analysts concentrate - as, to its credit does the bank - on the loss while the government (and the BBC) go looking for green shoots and find a £15m profit ny the simple dodge of ignoring interest charges on its borrowings !  Stephen Timms, Treasury minister, is the one doing this dishonest ‘spinning’ and we’ll be able to judge which commentators are worth reading on the basis of their reporting of this!

My trawling finds that the gullible include The Times (“RBS returns to profit but warns of grim times”) , The Independent talkis of RBS  “struggle to meet goals”  with the  sub-head saysof  “back into profit - but only just”.  The Scotsman decides not to put the story on its ‘home’ page at all despite it being the R.B. of SCOTLAND. In its business section it takes the biscuit with “RBS cautious despite edging back into profit”. The Mail does a ‘personality’ piece on boss’s bonus adding “edges back into the black”.    

The Guardian fudges it by the main headline talking of a “Return to profit” while simultaneously the immediately following sub-head talking of  “£1bn loss”  !!     

The reliable headlines come from the FT (“RBS cautious after reporting £1bn loss”), and The Telegraph which is immediately below.    I shall continue to watch the Telegraph but to my mind it is still the most reliable for economic news because its writers know what they are talking about and it doesn’t talk down to its readers. ! 

Christina

TELEGRAPH 7.8.09

RBS warns there will be no 'miracle cure' as it tumbles to £1bn loss

Royal Bank of Scotland, the part-nationalised lender, has posted a £1bn loss for the first six months of the year and warned that it will be some time before the bank and the economy get back on track.

 

      By Philip Aldrick, Banking Editor

“There will be no miracle cures,” said Stephen Hester, the chief executive, despite the marked improvement in the bank’s performance compared with last year’s record £24bn corporate loss.

“Our task is no less than one of the largest bank restructurings ever done, in the face of strong economic headwinds. Overall results may not substantially improve until 2011 and full recovery will take time.”

 

Outlining a series of five-year goals to fix the legacy of problems, he added that saving and borrowing levels in the UK must rebalance before the banks, “which generally mirror the economies they serve”, can return to long-term strength.“The answer to our collective problem is not to go back to lending or borrowing too much,” he said.

Among the targets RBS has set for itself are a reduction in the loan-to-deposit ratio from the current 144pc to 100pc – in other words customer deposits of £1 for every £1 lent instead of the current 70p of deposits for every £1 lent.

It will achieve the goal by reducing its “funded assets” by £500bn, which will see the loan book shrink to about £800bn from just over £1 trillion. “We are over half way though,” the bank said. Dependence on wholesale funding, which led to Northern Rock’s collapse, will also be limited from £343bn to less than £150bn. Total assets have already been cut by 26pc to £1.64 trillion – still larger than the entire UK economy.

RBS has split itself into “ core” and “non-core” divisions to distinguish between the businesses and assets that will be run down and sold and those that will remain central to the bank. [These divisions are undefined and from this account could consist of anything.  Indeed are they even defined and fixed internally? -cs]  The core division posted an operating profit of £6.3bn on revenues up 25pc to £17.8bn. Bad debts rose 225pc to £2.18bn.

The non-core division reported an operating loss of £9.65bn, “driven largely by credit market and other write-downs of £4.2bn and impairments of £5.3bn.” Bad debts for the group rose fourfold to £7.5bn “and are set to stay high for a while”, Mr Hester said – in contrast to the upbeat prognosis from Lloyds Banking Group on Wednesday.

Approximately 70pc of the impairments and write-downs incurred in the first half - £5.25bn - are attributable to assets covered by the Asset Protection Scheme, the state-backed “toxic” debt insurance scheme, RBS said. The “APS remains essential to RBS to give us additional resilience during the time it will take to regain standalone strength”, the bank said.

It expects to complete the scheme in the autumn after securing European state-aid approval [THAT will come with ‘slimming-down’ strings attached -cs] , but warned that the competition remedies required are “likely to require weakening of our core UK banking franchise, especially for business customers”.  

RBS shares yesterday rose above the price the Government paid for its £20bn investment - for the first time, lifting hopes that the taxpayer may be able to sell down its 70pc stake for a profit sooner than expected. However, that positive news was short lived after the shares slid more than 15pc to 44.88p within half an hour of trading starting on Friday - well below the 50.5p average price at which the taxpayer bought in.

The APS deal signed in February to protect £325bn of RBS’s worst assets was a second state bail-out. “Our central estimates suggest that the cost to the Treasury of APS will be broadly recouped through the substantial fees to be paid by RBS, although other more positive and negative outcomes remain very real,” Mr Hester said.

The APS is expected to boost the bank’s core tier-one capital ratio – the key measure of financial strength – from the current 6.3pc to about 11pc.

Much of the bank’s relative success in the half was down to a booming performance at its investment bank, where operating profits increased almost fivefold to £4.87bn and total income more than doubled to £7.83bn.

The division’s performance will inevitably be accompanied by large bonus payments to bankers this year, despite the taxpayer bail-out. Mr Hester has already admitted RBS has awarded guaranteed bonuses to a select few.

He sought to deflect anger by blaming the aggressive tactics of rivals, following revelations earlier this week that Barclays has contravened best practice guidelines in a handful of cases.

“For right or for wrong, the pay levels people are offered for doing similar jobs elsewhere are a key benchmark. We know to our cost, having suffered significant resignations of valuable staff members this year, that we cannot ignore competitor pay practices or we will fail as a business,” Mr Hester said.

“However, we can and have led in the way that we structure our rewards to staff and we hope that the rest of the industry follows this lead. Unusually among banks, bonuses across RBS where merited are now subject to deferral and clawback as standard.”

Staff costs in the investment bank rose 11pc to £1.79bn in the half despite an 8pc reduction in headcount. At that level RBS’s 19,000 investment bankers earned on average about £100,000 each in the half. 

However, the bank said: “The exceptionally favourable market conditions in the first half of 2009 are not expected to continue in the second half, and 

this is likely to have a material effect on the core bank’s operating income.”

Mr Hester admitted that RBS is likely to miss its £25bn Government-stipulated target for lending to UK households and businesses due to a drying up of demand  [Eh?-cs]. However, he stressed “RBS is making less profit from banking customers than before, not more”.

“Against a recessionary backdrop we face a challenge of finding enough credit worthy borrowers wishing to take on new debt.”

Overall, the bank has shrunk its credit balances due to a £7.3bn contraction in credit to business customers. However, it is more than meeting its mortgage lending target of £9bn of lending by February next year – having already lent £4.4bn on homes.

The UK retail and corporate banks also remained relatively resilient in the face of the recession. Bad debts up rose 84pc to £824m in the retail bank, causing operating profits to shrink 90pc to £53m. Profits in the corporate bank were down 66pc to £321m after a fivefold increase in bad debts to £551m.

Arrears on residential mortgage lending have risen more modestly than the industry and remain below average at 1.8pc. Current expectations are for the upward pressure on impairments to continue for the remainder of this year and into 2010, the bank said.

SKY NEWS 6.8.09

Business Leaders: Don't Bank On A Recovery

Business leaders have poured cold water on suggestions that the economy is about to emerge from the recession.

Speaking on Jeff Randall Live, Richard Lambert, the head of the CBI and a former member of the Bank of England's Monetary Policy Committee warned against premature optimism.

"What most businesses will say to you is that we think the recovery is going to be slow and protracted. It's going to take its time."

Andrew Moss, the chief executive of insurance giant Aviva also told Jeff Randall that his company is still seeing a lack of confidence in its customers.

"Look, I have to tell you we're pretty cautious. When it comes to saving in particular, people are not making long-term investment decisions.

"They don't have money to save... we have a little way to go."

At the same time a Sky News survey in conjunction with the British Chambers of Commerce showed that business leaders are not convinced that the end of the recession is in sight.

Of the 140 bosses who responded to our questionaire, just 37% said they thought the economy had turned for the better while 63% said it had not.

The comments came in response to a rash of media speculation that the worst of the downturn was now behind us.

Earlier in the day the Bank of England also signalled that it still has concerns about the state of the economy.

Policy makers announced that they would expand the amount of money being pumped into the economy, or quantitative easing, by £50bn to £175bn.