RBS Loss Wider Than Estimated on Greece, Compensation

Royal Bank of Scotland Group Plc, Britain’s biggest state-owned lender, reported a wider-than- estimated loss on impairments in Ireland, writing down Greek debt and compensating customers for improperly sold insurance.

The net loss for 2011 was 2 billion pounds ($3.1 billion) compared with 1.1 billion pounds a year earlier, the U.K.’s second-largest bank by assets said in a statement today. That was worse than the 1.1 billion-pound median estimate of 11 analysts surveyed by Bloomberg.

RBS took an impairment of 1.1 billion pounds on holdings of Greek government securities and said it “exceeded run-off targets” in its non-core businesses, bringing forward some of its losses. Chief Executive Officer Stephen Hester, 51, who has said his job is equivalent to defusing the “biggest time bomb in history,” has shrunk the bank’s assets by more than 700 billion pounds and cut more than 35,000 jobs since he took over from Fred Goodwin in 2008.

“While there is still work to be done to get RBS into a position where it is generating attractive returns for shareholders, the glide path to normality is increasingly clear,” UBS AG analysts John-Paul Crutchley and Alastair Ryan said in an e-mailed note.

RBS’s loss would have been narrower if it hadn’t taken 850 million pounds in charges relating to compensation for U.K. customers who were improperly sold personal-loan insurance.

Shares Rise

The loss at RBS’s Irish unit, Ulster Bank Ltd., increased to 1.02 billion pounds in 2011 from 760 million pounds in the previous year on impaired mortgages. RBS has injected as much as 10 billion pounds into its Irish unit since 2008.

The lender reduced its medium-term target for return on equity to 12 percent from 15 percent.

“We have three jobs at RBS -- to support our customers, to defuse our legacy risks and rebuild a successful, profitable bank,” Hester said in the statement. “In 2011 we showed results across all three goals, though with much still to do.”

Shares of RBS rose 5.1 percent to 28.72 pence at the close in London, compared with a 0.7 percent loss by the Bloomberg Europe Banks Index. After sinking 48 percent last year, the stock has rebounded 42 percent this year. By contrast, shares (RBS) of Commerzbank AG and Credit Agricole SA, which also reported earnings hurt by Greek writedowns today, both declined.

‘Enormous Progress’

“The management team have clearly made enormous progress and the market recognizes that,” said Christopher Wheeler, a banking analyst at Mediobanca SpA with a “neutral” rating on the stock. “However, RBS is still dogged by some serious issues, such as Ulster Bank.”

Operating profit at the bank’s consumer unit rose 45 percent to 1.99 billion pounds last year, while operating profit at the corporate unit slid 3.3 percent, RBS said.

RBS’s results were also affected by rising borrowing costs as the bank weans itself off low-interest government loans and takes on costlier funding in wholesale markets. The bank opted in December to go the European Central Bank for an emergency 5 billion euro loan as its own costs of borrowing reached an unsustainable level, a person familiar with the matter said.

The U.K. rescued RBS at the height of the financial crisis, injecting 45.5 billion pounds of taxpayer money into the lender, making it the costliest bailout of any bank.

Banker Pay

RBS’s compensation ratio, a measure of pay against revenue, rose to 41 percent compared with 34 percent for 2010. The bank’s bonus pool fell 21 percent to 985 million pounds, and total salaries fell 1 percent to 5.42 billion pounds.

“We have aligned the longer-term rewards our people receive with our shareholders’ interests,” RBS Chairman Philip Hampton said in a letter to shareholders. “We have led the way in changing how we pay our people.” Hampton and Hester last month relinquished their bonuses for 2011 amid a storm on the issue in the U.K. media.

The investment-banking unit set aside 390 million pounds of bonus, including cash, shares and deferred awards, a 58 percent drop from the year earlier, and an average of 22,941 pounds per worker. Operating profit at the investment bank slid 54 percent to 1.6 billion in 2011 compared with the previous year.

RBS paid employees at its securities business an average of about 112,000 pounds each including salary, bonus and pension, spokeswoman Linda Harper said by phone today, down from 152,000 pounds last year.

U.K. Prime Minister David Cameron said last month banks must show “proper regard” in limiting bonuses. “What needs to happen is a sense of restraint,” Cameron told reporters in Brussels after a meeting of European leaders. “They need to do a better job of demonstrating how pay is related to performance. What I care about is the taxpayer going to get the money back.”

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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Photographer: Jason Alden/Bloomberg

The Royal Bank of Scotland Group Plc (RBS) logo is displayed outside a branch in London, U.K., on Monday, Dec. 12, 2011. Royal Bank of Scotland Group Plc and U.K. regulators were heavily criticized by the Financial Services Authority's long awaited report into the near collapse of RBS in 2008 following its takeover of ABN Amro Holding NV.

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Photographer: Jason Alden/Bloomberg

The Royal Bank of Scotland Group Plc (RBS) logo is displayed outside a branch in London, U.K., on Monday, Dec. 12, 2011. Royal Bank of Scotland Group Plc and U.K. regulators were heavily criticized by the Financial Services Authority's long awaited report into the near collapse of RBS in 2008 following its takeover of ABN Amro Holding NV. Close

The Royal Bank of Scotland Group Plc (RBS) logo is displayed outside a branch in London, U.K., on Monday, Dec. 12,... Read More

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The logo of the Royal Bank of Scotland Group Plc is displayed outside the company's headquarters in London, U.K.

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The Royal Bank of Scotland Group Plc (RBS) logo hangs from a road bridge close to the company's headquarters in Gogarburn, Edinburgh, Scotland. Close

The Royal Bank of Scotland Group Plc (RBS) logo hangs from a road bridge close to the company's headquarters in... Read More

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