The world’s largest bank by assets, Royal Bank of
Scotland (RBS), said it expects to report the UK’s biggest ever
corporate loss – up to £28 billion ($41 billion) in fiscal 2008 –
including an expected impairment charge of between £15 billion and
£20 billion on its involvement in the disastrous 2007 acquisition
of ABN AMRO.
News of RBS’s crippling trading position on 19 January coincided
with the UK government launching its second multi-billion pound
rescue plan for its banking sector, including an asset protection
scheme under which banks will be able to insure large-scale loan
losses, a mere four months after investing £37 billion in RBS,
Lloyds TSB and HBOS.
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According to the government, the plan will allow banks to buy
state protection for eligible assets by paying a fee, which will be
agreed case by case banks, with the banks responsible for a “first
loss” amount, similar to an excess in an insurance claim, and will
also be liable for about 10 percent of the residual loss.
RBS also announced the UK government will increase its stake in
the bank to up to 70 percent from 58 percent, in exchange for
replacing its £5 billion preference share stake for ordinary
shares.
Redemption of the preference shares, which were paying 12
percent, will save RBS £600 million in annual interest payments and
raise the bank’s core Tier 1 ratio by almost 1 percent to between
6.9 percent and 7.4 percent.
The new shares will be offered to shareholders at a fixed price
of £0.31; however RBS shares slumped to £0.12 on 19 January,
valuing the bank at around £6 billion. The shares have lost more
than 95 percent of their value in the past 12 months.
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By GlobalDataBy contrast, rival Barclays, set to report on 17 February,
issued a bullish statement saying it expects “to report profit
before tax for the year, after reflecting all costs, impairment and
market valuations, well ahead of the £5.3 billion consensus”, while
HSBC sought to shoot down rumours it was set to seek a bail
out.
In a statement, HSBC said: “HSBC has not sought capital support
from the UK Government and cannot envisage circumstances where such
action would be necessary.”
