Thursday February 26, 10:36 PM
RBS posts biggest loss in British corporate history
By Roland Jackson
LONDON (AFP) - Royal Bank of Scotland (LSE: RBS.L - news) (RBS) posted Britain's biggest ever corporate loss Thursday and put risky assets into a government insurance scheme, as a row blew up over its former boss's generous pension.
The 70 percent state-owned bank was again mired in controversy after ex-chief executive Fred Goodwin, blamed by many for steering it to disaster, refused a government call to give up part of his pension.
RBS lost 24.1 billion pounds (34 billion dollars, 27 billion euros) for 2008 and will ring-fence 325 billion pounds of assets into the insurance scheme.
Its losses came due to the credit crunch and its costly acquisition of Dutch lender ABN Amro (Amsterdam: AABA.AS - news) .
The bank (NASDAQ: TBHS - news) has already taken 20 billion pounds of government funds and says it will raise another 13 billion pounds of state money in return for more shares. This could see the state's interest rise as high as 95 percent, close to full nationalisation.
As news of the losses emerged, it was revealed that Goodwin (LSE: GDWN.L - news) , 50 -- nicknamed "Fred the Shred" for his cost-cutting reputation -- was entitled to a pension worth over 650,000 pounds a year for life.
Mindful of public anger about banking bonuses and payoffs, ministers asked Goodwin to surrender part of the pension, but Goodwin refused.
Prime Minister Gordon Brown has threatened possible legal action over the affair.
Goodwin wrote to Treasury Minister Lord Paul Myners saying he had already accepted less money than he was due when he quit last year.
"I accept responsibility for that which I was responsible for and recognise that my actions must be consistent with this," he wrote.
"I believe that they have been and to voluntarily accept a reduction in a pension entitlement which has been built up over many years... is not warranted."
Myners dismissed this response as "unfortunate and unacceptable."
In a reply to Goodwin, he said: "The losses reported today by the bank which you ran until October cannot justify such a huge award."
Brown earlier pledged that there would be "no reward for failure."
"I am determined that we pursue, if necessary by legal action, cases where too much money has been taken out in cases where there is less justification than has been claimed for remuneration," he said.
Goodwin claims his pension was cleared by Myners last year, but the minister said he had not known at the time that the pension award was discretionary.
George Osborne, finance spokesman for the main opposition Conservatives, described the pension as "obscene" and "a totally irresponsible use of taxpayers' money."
RBS's disastrous results contrasted sharply with a net profit of 6.8 billion pounds in 2007. It was forced to write off 16.2 billion pounds in 2008 on the disastrous record-breaking consortium acquisition of ABN Amro in 2007.
Chairman Philip Hampson described Thursday's results as "disappointing," adding, "we owe our continued independence to the UK government and taxpayers and are very thankful for their support."
However, in morning trade, RBS's share price jumped by as much as 40 percent as investors cheered the results, which were better than a feared 28-billion-pound loss, and the toxic assets plan.
RBS stock finished Thursday at 29 pence, up 25.54 percent from Wednesday's close.
The group announced it will split into two parts, hiving off its riskier holdings into a "non-core" division of assets worth around 540 billion pounds that will be wound down over the next five years.
RBS will also pay 6.5 billion pounds to take part in the Asset Protection Scheme, aimed at stimulating bank lending in recession-hit Britain.
In return for its participation, RBS will commit to lend 25 billion pounds to consumers and businesses this year and a similar amount in 2010.
Stephen Hester, Goodwin's successor, also announced plans to cut 2.5 billion pounds in costs across RBS by 2011, saying this would "regrettably" led to more job losses. Reports have suggested that up to 20,000 jobs could go.
The move will see RBS sell off and withdraw or reduce operations in 36 countries to refocus activities on the domestic market, as well as pulling out of sponsoring the Williams Formula One team next year.
|
|
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View
