Monday January 19, 06:20 PM
RBS shares collapse on forecast of record annual loss
By Ben Perry
LONDON (AFP) - Royal Bank of Scotland (LSE: RBS.L - news) shares plunged almost 70 percent Monday after it forecast an annual loss of up to 28 billion pounds -- a record in British corporate history -- due to the credit crisis and its part in the costly and mis-timed takeover of Dutch lender ABN Amro (Amsterdam: AABA.AS - news) .
Shares in the bank, which is majority owned by the British government, crashed 66.57 percent to close at 11.60 pence on London's FTSE 100 index, which finished 0.93 percent lower.
Other banks also fell sharply, with the newly-created Lloyds Banking Group slumping 33.94 percent to 65 pence despite news of another government banking-sector rescue package worth tens of billions of pounds.
"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 said in a trading update.
"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.
British Prime Minister Gordon Brown, who had unveiled a second banking-sector rescue plan 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) -- RBS 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.
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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