Thursday, February 24, 2011

RBS recovery undermined by Irish losses

A man walks out of an RBS building in the City of London

RBS recovery undermined by Irish losses

LONDON (Reuters) - Royal Bank of Scotland's high bad debt charges in Ireland and a weak investment banking performance overshadowed the bank's return to profit in the final months of 2010.

RBS, bailed out with billions of pounds of taxpayers' money during the credit crisis, posted an overall loss of 1.1 billion pounds in 2010, largely driven by losses at its Ulster Bank arm.

The bank scraped back into a slight profit in the final months of 2010 but impairment losses during the fourth quarter rose to 930 million pounds from 782 million the previous quarter.

Investors were also disappointed by a drop in profits at RBS' lucrative investment banking arm.

"The situation in Ireland has had a painful effect on the bank's numbers however, whilst in line with many of its global peers the investment banking arm has failed to inspire," said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers.

RBS shares were down 2.2 percent at 46.3 pence by 0850 GMT, which means the British taxpayer is sitting on a loss of nearly 3 billion pounds.

The government bought its stake at an average price of around 50 pence.

"The market is taking risk off the table, and banks are still risky," said Brown Shipley fund manager John Smith.

Both RBS and British rival Lloyds , which reports results on Friday, were bailed out by Britain during the 2008 credit crisis, which left the government with an 83 percent stake in RBS and a 41 percent stake in Lloyds.


Britain eventually plans to sell those stakes but RBS Chief Executive Stephen Hester told reporters a sale was unlikely before the Independent Commission on Banking (ICB) - set up to examine a potential break-up of the UK's top lenders -- publishes its final report in September.

On Thursday, Qatari Prime Minister Sheikh Hamad bin Jassim bin Jabr al-Thani said that Qatar was open to buying stakes in both RBS and Lloyds. Hester said this matter was one for the British government to comment upon.

As a result of its government bailout, RBS was ordered by European regulators to dispose of a range of assets by 2013, including its insurance division.

RBS said that preparations for the sale of its insurance arm were continuing, and that its overall restructuring program was progressing well.

But RBS CEO Hester said that political pressure on banks, such as calls by top ministers to curb pay and bonuses, was having a negative effect.

"It's a tough thing for us, it can feel pretty beleaguered working at RBS with external and internal pressures, that's one of the handicaps we work with," Hester told reporters on a conference call, saying the bank could "sometimes be a political football."