RBS Faces `Long, Hard Slog' as Hester Forecasts Reduced Loss
RBS CEO Stephen Hester
Chris Ratcliffe/Bloomberg
Royal Bank of Scotland Group Chief Executive Officer Stephen Hester said in the statement, “Our third quarter results demonstrate that we continue to make good progress in our recovery.”
Royal Bank of Scotland Group Chief Executive Officer Stephen Hester said in the statement, “Our third quarter results demonstrate that we continue to make good progress in our recovery.” Photographer: Chris Ratcliffe/Bloomberg
Nov. 5 (Bloomberg) -- Ralph Silva, strategist at Silva Research Network, talks about Royal Bank of Scotland Group Plc's third-quarter loss. Silva, speaking with Andrea Catherwood on Bloomberg Television's "The Pulse," also assesses the capital requirements of smaller banks across Europe. (Source: Bloomberg)
Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, faces a “long, hard slog” as it forecast a reduced loss in 2010.
The loss for the year will be “nominal,” Chief Executive Officer Stephen Hester, 49, said on a conference call with journalists today, following a 3.6 billion-pound ($5.8 billion) loss in 2009. The third quarter net loss narrowed by 36 percent to 1.15 billion pounds from 1.8 billion pounds in the year- earlier period as impairments fell, RBS said in a statement.
RBS faces “a long, hard slog,” according to Ian Gordon, a banking analyst at Exane BNP Paribas SA in London, in a note to clients. “Management deserves credit for the good progress that has been made but it remains a long journey of rehabilitation.”
Hester is part way through a plan to shrink the Edinburgh- based bank by selling assets and cutting jobs, a process he described in May as the most complicated restructuring of any company in history. RBS received the biggest taxpayer-funded bailout in the world in 2008.
“There are inevitably clouds still out there on the horizon,” Hester said. “We still have our raincoats on.”
HSBC Holdings Plc, the U.K.’s biggest bank, said today that profit growth slowed in the third quarter and that recovery in emerging markets may be faltering. Lloyds Banking Group Plc, Britain’s biggest mortgage lender, posted a decline in impairments this week, while Barclays Plc reports next week.
Impairments Decline
RBS lost 4.5 percent to 45 pence at the close of trading in London, for a market value of about 49 billion pounds. RBS shares gained about 14 percent in the third quarter, while HSBC rose 4.8 percent and Barclays 10.7 percent.
Impairments fell 40 percent to 1.95 billion pounds in the period, beating the 2.5 billion-pound median estimate of 11 analysts surveyed by Bloomberg. That decline helped cushion a decline in revenue at the RBS’s investment-banking unit, run by John Hourican.
Operating profit from the investment bank, excluding losses linked to revaluations of RBS’s own debt, shrank 8 percent from the year-earlier period to 589 million pounds amid “tough” trading conditions, the bank said. The outlook for the unit in the fourth quarter will “remain challenging,” it said.
UBS AG, Switzerland’s biggest bank, reported a 406 million Swiss franc ($423 million) third-quarter loss at its investment bank compared with a loss of 1.37 billion francs a year ago. Credit Suisse Group AG, the No. 2 Swiss bank, posted a 395 million franc profit at its securities unit during the period from 1.75 billion francs a year ago.
Consumer Bank Profit
Operating profit at the U.K. consumer banking unit rose to 398 million pounds from 64 million pounds. Profit rose 11 percent to 422 million pounds at the British corporate lending division.
The bank’s insurance unit posted a loss of 33 million pounds compared with a profit of 11 million pounds. RBS said today it is planning an initial public offering of the unit in the second half of 2012.
Operating profit at RBS’s core units, those parts the bank plans to keep, rose by 6.8 percent to 1.73 billion pounds. The lender recorded a loss of 858 million pounds on the fair value of its own debt and took an 825 million pound charge related to its use of the government’s Asset Protection Scheme. Banks, which were able to book gains on the value of their bonds during the credit crisis, have to cut the value the same securities as the company’s creditworthiness improves under accounting rules.
After those deductions, the lender logged a 132 million- pound operating loss, less than a tenth of the loss in the year- earlier period.
U.K. Bank Levy
The operating loss at the “non-core” division, those units the bank wants to sell, narrowed to 1 billion pounds from a loss of 2.66 billion pounds.
The U.K. bank levy will cost RBS as much as 250 million pounds next year, rising to about 400 million pounds by the end of 2012, RBS said. The tax will be based on revenue from U.K. banks’ global businesses and from the British-based units of foreign banks.
The lender said it doesn’t need to raise capital from shareholders to meet the latest Basel rules on bank capital. The bank’s core Tier 1 ratio, a measure of financial strength, stood at 10.2 percent on Sept. 30, down from 11 percent on Dec. 31.
RBS, 83 percent government-owned, reported a 9 million- pound profit in the first half of this year. The lender posted losses of 26 billion pounds in 2008 and 2009 and needed 45.5 billion pounds of taxpayer aid.
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Jon Menon in London at jmenon1@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
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