RBS costs the taxpayer another £600m
Discussion
So how are they getting on at RBS? Last week the shares slumped to a new low of 24 pence, meaning we taxpayer enforced shareholders at today’s prices have lost more than half the money we were made to invest in the Group’s shares. Anyone who knows the history of UK nationalisation will not be surprised.
The Group produced its half yearly results recently. These showed that the bank has done a good job complying with regulatory requirements to have much more cash and capital relative to its business activities, and to get its loans below the level of the deposits. I would say it needs to do no more to strengthen its balance sheet according to regulatory measurements. It has gone from a Tier One Core Capital ratio of a too small 4% to an impressive 11.1%, and has moved from leverage of a mind blowing 28.7 times to a more conservative 17.8 times. Job done.
What is altogether more disturbing are the losses still being incurred, and some of the investment decisions being made. In the first half the Group lost £678 million before tax. Those losses are largely down to the taxpayer to pay. No-one raises issues about them in the Commons apart from myself, and no-one seems to think they are avoidable. Yet those losses represent the excess of RBS spending and cost over its revenues. If it cannot get its revenues up it has to get its costs down.
In Quarter Two 2010 income was £396 million lower than Quarter Two 2010. Costs were only £211 million lower. That is not the way to bring a company into profit. Core total income for the half year fell by £1177 million, whilst costs rose by £36 million. The half year saw losses of £850 million on Payment Protection Insurance recognised, and £733 million losses on Greek sovereign debts. The management calls these “issues of the past”.
I can sympathise with them about the PPI. That is largely down to previous managements. I hold the present management to account for the Greek sovereign debts. Why would anyone have held Greek debt over the last couple of years? Have they not been reading the warnings and hearing the alarms sounded like the rest of us? What part of Euro crisis and Greek bankruptcy – the Greek state’s inability to borrow in the normal way in the markets to pay its bills – did they not understand? Why was a state bank still in Greek debt?
For that matter why did RBS increase its holdings of Italian debt to £955 million in time for the crisis in their bonds? And why was it adding a little to its Spanish debt position? Total debt securities are up by £12 billion on the quarter, and £26 billion over the half year.
Its portfolio of sovereign and financial bonds rose by 12% or £26 billion whilst its portfolio of loans and advances to customers fell 2% or £9.5 billion. It did meet its UK business lending target. It still holds £394 billion in derivatives and £95 billion in loans to other banks, compared to £545 billion of customer loans. It has a substantial US and European business on top of its UK business, and a large investment bank.
I see no reason for UK taxpayers to be subsidising the losses of such a Group. The bank should be told to make more rapid progress with selling off its different businesses to cut risk and bring in cash. UK taxpayers should not be punting in Euro sovereign debts in the middle of such a crisis. It would be easy to cut the size of the RBS balance sheet, cut the risks and get some cash back.
Leftie male voice choir member
I thought the PH finance industry cheerleaders promised that by bailing out the banks 'top talent' would make a fortune for the taxpayer.
The Group produced its half yearly results recently. These showed that the bank has done a good job complying with regulatory requirements to have much more cash and capital relative to its business activities, and to get its loans below the level of the deposits. I would say it needs to do no more to strengthen its balance sheet according to regulatory measurements. It has gone from a Tier One Core Capital ratio of a too small 4% to an impressive 11.1%, and has moved from leverage of a mind blowing 28.7 times to a more conservative 17.8 times. Job done.
What is altogether more disturbing are the losses still being incurred, and some of the investment decisions being made. In the first half the Group lost £678 million before tax. Those losses are largely down to the taxpayer to pay. No-one raises issues about them in the Commons apart from myself, and no-one seems to think they are avoidable. Yet those losses represent the excess of RBS spending and cost over its revenues. If it cannot get its revenues up it has to get its costs down.
In Quarter Two 2010 income was £396 million lower than Quarter Two 2010. Costs were only £211 million lower. That is not the way to bring a company into profit. Core total income for the half year fell by £1177 million, whilst costs rose by £36 million. The half year saw losses of £850 million on Payment Protection Insurance recognised, and £733 million losses on Greek sovereign debts. The management calls these “issues of the past”.
I can sympathise with them about the PPI. That is largely down to previous managements. I hold the present management to account for the Greek sovereign debts. Why would anyone have held Greek debt over the last couple of years? Have they not been reading the warnings and hearing the alarms sounded like the rest of us? What part of Euro crisis and Greek bankruptcy – the Greek state’s inability to borrow in the normal way in the markets to pay its bills – did they not understand? Why was a state bank still in Greek debt?
For that matter why did RBS increase its holdings of Italian debt to £955 million in time for the crisis in their bonds? And why was it adding a little to its Spanish debt position? Total debt securities are up by £12 billion on the quarter, and £26 billion over the half year.
Its portfolio of sovereign and financial bonds rose by 12% or £26 billion whilst its portfolio of loans and advances to customers fell 2% or £9.5 billion. It did meet its UK business lending target. It still holds £394 billion in derivatives and £95 billion in loans to other banks, compared to £545 billion of customer loans. It has a substantial US and European business on top of its UK business, and a large investment bank.
I see no reason for UK taxpayers to be subsidising the losses of such a Group. The bank should be told to make more rapid progress with selling off its different businesses to cut risk and bring in cash. UK taxpayers should not be punting in Euro sovereign debts in the middle of such a crisis. It would be easy to cut the size of the RBS balance sheet, cut the risks and get some cash back.
Leftie male voice choir member
I thought the PH finance industry cheerleaders promised that by bailing out the banks 'top talent' would make a fortune for the taxpayer.
Fittster said:
What is altogether more disturbing are the losses still being incurred, and some of the investment decisions being made. In the first half the Group lost £678 million before tax. Those losses are largely down to the taxpayer to pay. No-one raises issues about them in the Commons apart from myself, and no-one seems to think they are avoidable. Yet those losses represent the excess of RBS spending and cost over its revenues. If it cannot get its revenues up it has to get its costs down.
Are you claiming that you are Vince Cable?Don
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Thinking outside the box a minute, how low can these shares possibly go? its only a matter of time until they turn this around and start making millions most of the other banks are and im sure if they did get their house in order they are ripe for a takeover by a larger bank. Ok the taxpayer would loose millions if they were taken over at a lower share price but the PHer who got in at a very low price could make a few quid.
And they're revoking access to other banks' cashpoints for some cardholders! I appreciate they've got to be shown to save costs, but they seem utterly hell bent on taking backwards steps lately.
http://www.bbc.co.uk/news/business-14563897
http://www.bbc.co.uk/news/business-14563897
RBS should have been let alone to "go". It had been run by idiots for several years and the ridiculously overpriced acquisition of ABN Amro was so utterly obviously a crazy transaction, it was only a matter of time til it went tits up. And yet, the morons running the place were celebrating, whilst the ones who had been outbid sighed a huge relief t haing dodged a huge bullet.
Madness by idiots who beleived their own hype and consistently massaged their own egos, and it has cost every one of us very dear so far.
If it has been Royal Bank of England, it would have been let to its own devices.
Madness by idiots who beleived their own hype and consistently massaged their own egos, and it has cost every one of us very dear so far.
If it has been Royal Bank of England, it would have been let to its own devices.
Victor McDade said:
anonymous said:
[redacted]
And got away with it because the economic guru and ex-towel folder Gideon had no alternative plan either. Gordon may be a fat, one eyed, delusional fool but the opposition were equally as clueless at that stage.As for Gordon saved banks in Labour areas. What about Lloyds? The fact was that pretty much everyone was screaming for the government to step in as they were working on the assumption that if one failed the confidence in the sector would collapse. Would that have happened? Who knows.
The point is that some were claiming that nationalisation of the banks would be a huge money spinner for the taxpayer. After two years the costs continue to mount up and no exit is insight.
williamp said:
I have alwasy thought it odd how RBS were about to buy the much larger Nat west, and BoS Halifax and others. For a while a few years back, it seemed that anyone in the world could buy English based banks...except the English
No conspiracy. RBS paid a hefty price for Natwest (£21bn) and no one else came near. If you want to blame anyone, it might be Natwest themselves who failed in their attempt to be a global I-Bank (read all about NatWest Markets).There's some interesting points here but a lot of them aren't accurate....if you care to search on posts from me about RBS you'll see I've been advising caution in terms of investing in RBS shares for quite a long time.
A little bit of history....
RBS grew from being a small peripheral regional bank to being big enough to buy Natwest by taking more risk than other banks....to put it simply they were happy to lend money to companies that other banks wouldn't and could charge high interest rates as a result. They pursued this policy in the late 90's which as everyone will recall was a period of strong growth in the economy so it worked actually worked quite well...they were known in the corporate world as being a bank that would lend to companies that no one else would. This lending pattern continued until effectively RBS went bust....at that stage they were the largest Leveraged Finance lender in Europe.....i.e. the biggest lender to the riskiest companies. In the late 90's RBS's shareholders lapped up this "organic growth" which saw the value of the company grow considerably and the RBS management team being feted as superstars of the banking world (Goodwin joined in '98)
In 2000 Nat West which unlike RBS had exhibited extremely poor growth and was very badly managed was struggling...to appease shareholders Natwest announced a proposed merger with L&G which shareholders were horrified by and wanted management out. RBS and BOS both bid very aggressively for Natwest (RBS did NOT buy Natwest without any competiton as stated above) with RBS ultimately successful. Because Natwest was so badly managed it was relatively easy for RBS to shred costs and display what the stock market thought was very strong organic growth.....it was really more a case of managing the business half decently. Goodwin described buying Natwest as walking along the street and finding a £20 note on the pavement....free money.
The RBS management team now had an investment bank (which they knew nothing about) and a massive balance sheet to play with...they went on massive lending spree growing the balance sheet at something close to £100bil a year....and didn't hedge any of it. They also bought more businesses including Citizens in the US.
This all went very well, earnings were strong and corporates were in rude health so defaults and write off's were minimal. However shareholders slowly began to understand the business better and realised this growth was driven through taking more risk (bigger balance sheet) and not better quality fee income busines (low risk)...RBS's share price suffered and was the worst performing banking stock in Europe for two or three years prior to going bust.
Meanwhile the same management team that was running RBS in the mid 90's was now in charge of a business of much more complexity and many times the size.....they frankly hadn't a clue what they were doing. Indeed some of the investent banking management team had been fired by Natwest before the takeover (and in one case struck off by the SFA for incompetance) and subsequently hired by RBS before the takeover....when RBS bought Natwest the very same people effectively got their old jobs back at an even bigger company having already proved they couldn't managed a smaller less sophisticated business. Goodwin's direct report that ran most of the riskiest businesses was called Johnny Cameron (he was struck off by the SFA post collapse)....he used to boast that when he first started running RBS's investment and corporate bank it had profits of £80k...when they went bust he was running a business making about £6bil. No one can grow with a business like that.
Fast forward to the credit crisis to a bank that had over £1trillion in assets had never had a proper culture of hedging risk loan risk (it reduced "profits") and a management team that had never managed a business of this size and complexity in a recession. It was an accident waiting to happen but as the biggest clearing bank in the UK could simply not be allowed to fail.
So why are they still losing money ? It's pretty simple...when RBS was bailed out and we became 84% shareholders the losses were actually far greater than were were taken at the time. RBS was technically insolvent. However to avoid RBS being nationalised the losses were kept to a level where conveniantly we just avoided having to nationalise them....basically ever since then any "profits" have been used to write down these losses which should have been taken in 2008 but weren't.
So we effectively own 84% of a technically insolvent bank which if these losses can continue to be taken gradually (through accounting tricks) we might get our money back for....however in an scenario where defaults both from corporates and individuals rise rapidly you could see RBS needing more money which would see it nationalised.
That's why interest rates are effectively zero in this country and why they will be for a while...to reflate the banking system and help it write down those losses.
We should actually be glad we don't own 100% of it.
A little bit of history....
RBS grew from being a small peripheral regional bank to being big enough to buy Natwest by taking more risk than other banks....to put it simply they were happy to lend money to companies that other banks wouldn't and could charge high interest rates as a result. They pursued this policy in the late 90's which as everyone will recall was a period of strong growth in the economy so it worked actually worked quite well...they were known in the corporate world as being a bank that would lend to companies that no one else would. This lending pattern continued until effectively RBS went bust....at that stage they were the largest Leveraged Finance lender in Europe.....i.e. the biggest lender to the riskiest companies. In the late 90's RBS's shareholders lapped up this "organic growth" which saw the value of the company grow considerably and the RBS management team being feted as superstars of the banking world (Goodwin joined in '98)
In 2000 Nat West which unlike RBS had exhibited extremely poor growth and was very badly managed was struggling...to appease shareholders Natwest announced a proposed merger with L&G which shareholders were horrified by and wanted management out. RBS and BOS both bid very aggressively for Natwest (RBS did NOT buy Natwest without any competiton as stated above) with RBS ultimately successful. Because Natwest was so badly managed it was relatively easy for RBS to shred costs and display what the stock market thought was very strong organic growth.....it was really more a case of managing the business half decently. Goodwin described buying Natwest as walking along the street and finding a £20 note on the pavement....free money.
The RBS management team now had an investment bank (which they knew nothing about) and a massive balance sheet to play with...they went on massive lending spree growing the balance sheet at something close to £100bil a year....and didn't hedge any of it. They also bought more businesses including Citizens in the US.
This all went very well, earnings were strong and corporates were in rude health so defaults and write off's were minimal. However shareholders slowly began to understand the business better and realised this growth was driven through taking more risk (bigger balance sheet) and not better quality fee income busines (low risk)...RBS's share price suffered and was the worst performing banking stock in Europe for two or three years prior to going bust.
Meanwhile the same management team that was running RBS in the mid 90's was now in charge of a business of much more complexity and many times the size.....they frankly hadn't a clue what they were doing. Indeed some of the investent banking management team had been fired by Natwest before the takeover (and in one case struck off by the SFA for incompetance) and subsequently hired by RBS before the takeover....when RBS bought Natwest the very same people effectively got their old jobs back at an even bigger company having already proved they couldn't managed a smaller less sophisticated business. Goodwin's direct report that ran most of the riskiest businesses was called Johnny Cameron (he was struck off by the SFA post collapse)....he used to boast that when he first started running RBS's investment and corporate bank it had profits of £80k...when they went bust he was running a business making about £6bil. No one can grow with a business like that.
Fast forward to the credit crisis to a bank that had over £1trillion in assets had never had a proper culture of hedging risk loan risk (it reduced "profits") and a management team that had never managed a business of this size and complexity in a recession. It was an accident waiting to happen but as the biggest clearing bank in the UK could simply not be allowed to fail.
So why are they still losing money ? It's pretty simple...when RBS was bailed out and we became 84% shareholders the losses were actually far greater than were were taken at the time. RBS was technically insolvent. However to avoid RBS being nationalised the losses were kept to a level where conveniantly we just avoided having to nationalise them....basically ever since then any "profits" have been used to write down these losses which should have been taken in 2008 but weren't.
So we effectively own 84% of a technically insolvent bank which if these losses can continue to be taken gradually (through accounting tricks) we might get our money back for....however in an scenario where defaults both from corporates and individuals rise rapidly you could see RBS needing more money which would see it nationalised.
That's why interest rates are effectively zero in this country and why they will be for a while...to reflate the banking system and help it write down those losses.
We should actually be glad we don't own 100% of it.
Edited by Beardy10 on Thursday 18th August 13:44
Beardy10 said:
That's why interest rates are effectively zero in this country and why they will be for a while...to reflate the banking system and help it write down those losses.
Over simplistic to draw parallels with Japan (where a while is around 20+ years).Time to buy a copy of Dogs and Demons: Tales Form the Dark Side of Modern Japan
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