RBS’s 2010 Loss Misses Estimates on Ireland, Securities Unit

Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, missed analyst estimates as losses from Ireland rose and profit from investment banking fell.

The net loss for 2010 was 1.1 billion pounds ($1.78 billion) compared with a loss of 3.6 billion pounds in 2009, the Edinburgh-based bank said in a statement today. That was worse than the 406.5 million-pound median loss estimated by 11 analysts surveyed by Bloomberg. Irish loan-losses almost doubled to 1.16 billion pounds, while operating profit at the investment bank fell by 2.2 billion pounds. RBS shares dropped.

“We have much work still to do and there are significant obstacles still to overcome,” Chief Executive Officer Stephen Hester said in the statement.

Hester, 50, forecast the bank would return to profit in 2011 after three years of losses. The bank, which received a 45.5 billion-pound taxpayer rescue, the biggest in the world, has cut about 27,000 jobs and reduced its assets by 948 billion pounds since Hester replaced Fred Goodwin during the financial crisis of November 2008.

“They’ve missed estimates with another anaemic revenue performance at the investment bank and a spike up in loan losses at the non-core division,” said Ian Gordon, an analyst at Exane BNP Paribas in London. “The legacy issues for the group are large and enduring. It isn’t a pretty picture.”

RBS dropped 3.6 percent to 45.6 pence at the close in London, the biggest decline in the FTSE 350 Index of Britain’s five biggest banks.

Bad Loans

Overall, bad-loan provisions fell to 9.3 billion pounds from 13.9 billion pounds, the bank said. The rise in Irish bad loans reflected the country’s “deteriorating economic environment,” RBS said.

RBS also took a 1.1 billion pound after-tax charge for its use of the Asset Protection Scheme, a government-backed insurance program for toxic debt.

Operating profit at the investment bank led by John Hourican was 3.5 billion pounds compared with 5.7 billion pounds in the year earlier. The unit’s revenue fell to 7.9 billion pounds, from 11.1 billion pounds a year earlier. Barclays Plc, a U.K.-based competitor, this month said 2010 pretax profit almost doubled at its investment banking unit, even as revenue dropped 25 percent to 13.33 billion pounds.

RBS said it would continue to target a 15 percent return on equity, whereas Barclays this month cut its target to 13 percent or more.

First Bonus

Operating profit at the U.K. consumer bank rose almost sixfold to 1.37 billion pounds compared with 229 million pounds in 2009, the bank said.

“The fact that U.K. retail did so well should be great read-across for Lloyds” which reports full-year earnings at 7 a.m. in London tomorrow, said Arturo de Frias, head of banking research at Evolution Securities Ltd. in London.

Hester will take his first bonus since joining the bank, accepting a 2 million-pound all-stock payout. He refused payments for 2008 and 2009. The bank posted a loss of 24.3 billion pounds in 2008, the biggest in U.K. corporate history.

The overall 2010 bonus pool will be less than 950 million pounds, a 27 percent reduction from 2009.

“Pay per head is significantly down,” Hester said in a call with journalists today. “Total pay is also down and the number of heads are up. We’ve got more people with less pay.”

Stake Sale

RBS, 83 percent owned by the government, has to sell its insurance operations, which includes Direct Line and Churchill, by 2013 to comply with a European Union ruling following its receipt of state aid. The bank had about 195 billion pounds of risky assets insured by the government under the Asset Protection Scheme at the end of the fourth quarter, down from 205 billion pounds in the previous quarter.

“Our state support is reducing big time” through dramatic declines in liquidity support, Hester said on a call with journalists.

The RBS CEO also echoed comments made last month by U.K. Financial Investments, which manages taxpayer bank holdings, saying the government was unlikely to start selling its stake before the Independent Commission on Banking delivers its final report in September and that the process could take several years.

“There are likely to be several tranches and they will likely be split a couple of years apart,” Hester said at a press conference today. “It will be a multi-year process.”

Qatar’s prime minister yesterday held out the possibility of buying stakes in RBS and Lloyds Banking Group Plc during a visit by Britain’s Prime Minister David Cameron.

To contact the reporter 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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.