Monday January 19, 03:31 PM
RBS sees massive losses, shares crash
By Ben Perry
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LONDON (AFP) - Royal Bank of Scotland (LSE: RBS.L - news) said Monday it expected an annual loss of up to 28 billion pounds -- a record in British corporate history -- due to the credit crisis and its part-takeover of ABN Amro (Amsterdam: AABA.AS - news) .
The news sent shares in the state-controlled bank crashing by more than 71 percent to just 10 pence (11 euro cents) on London's FTSE 100 index, which was down 1.45 percent overall in late afternoon trade. Other banks were also down sharply.
In reaction, British Prime Minister Gordon Brown, who unveiled a second banking-sector rescue package worth tens of billions of pounds earlier Monday, slammed RBS for making investment decisions that were "clearly wrong."
"Now we know that so much was lost in (higher-risk) subprime loans in the US and now we know that some of that was related to the purchase of ABN Amro, I think people have a right to be angry that these write-offs are happening and that these write-offs were caused by decisions that were made about international investments that were clearly wrong investments," Brown said.
Even at the low-end of its estimated losses -- 22 billion pounds (24 billion euros, 32 billion dollars) -- Royal Bank of Scotland was on course to post the biggest loss in British corporate history.
That record is currently held by telephone giant Vodafone (LSE: VOD.L - news) , which recorded a loss of 15 billion pounds in 2005-2006 after being forced to revalue assets.
"Credit and market conditions in the fourth quarter of 2008 were particularly challenging and RBS estimates the group will report for full year 2008 an attributable loss, before exceptional goodwill impairments, of between 7.0 and 8.0 billion pounds," RBS -- now majority-owned by the taxpayer -- said in a trading update on Monday.
"The group is currently reviewing the carrying value of goodwill and other purchased intangibles on its balance sheet as part of the finalisation of the year end results. Preliminary findings indicate an estimated impairment charge in the region of approximately 15 to 20 billion pounds," it said.
The additional losses are largely linked to the value of RBS assets secured after a consortium of which it was a part took over Dutch banking group ABN Amro in 2007.
The government separately said it would convert its preference shares in RBS obtained during October's bailout and worth five billion pounds into normal shares.
This would mean the bank would no longer have to pay a fixed dividend to the government, thus freeing up cash to lend. In return, the taxpayer's stake in RBS would increase to almost 70 percent from 58 percent.
"The dislocation of credit markets and the global economic downturn continue to hit RBS hard, as with many other banks," the bank's chief executive Stephen Hester added.
"We are making progress in recognising excess risk and dealing with it. Significant uncertainties and risks inevitably remain. In this context, the support we are receiving from government benefits all our stakeholders and enables us to provide more customer support in return."
The bank (NASDAQ: TBHS - news) said that its retail and commercial banking businesses in Britain remained profitable, with the losses coming in its global banking and markets division.
In a bid to raise cash, Royal Bank of Scotland last week sold its stake in Bank of China (3988.HK - news) for 1.6 billion pounds.
RBS, alongside HBOS (LSE: HBOS.L - news) and Lloyds TSB, which have merged, has been a leading beneficiary of the government's banking sector bailout, announced last October, after the global credit crunch savaged markets and economies worldwide.
The bank has faced criticism over its leading role in the takeover of ABN Amro for 71 billion euros (100 billion dollars). The consortium's bid was sealed shortly before the credit crunch slammed into global markets.
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