RBS loses nearly half its £60bn toxic debt excess

Author: By Russell Lynch, Press Association

RBS agreed this week to put £282 billion in bad loans into the Asset
Protection Scheme (APS), under which it shoulders the first £60 billion in
losses on the debts.

But third-quarter results released today showed RBS – which will be 84%
state-owned under the terms of the APS – used £26.6 billion of the buffer by
the end of June.

A further £3.2 billion in loan losses announced for the third quarter – mostly
on APS assets – is likely to take RBS’s “first loss” close to £30 billion.

The figures came as RBS unveiled a pre-tax loss of £2.1 billion for the
July-September period – down from a £1.9 billion profit a year earlier.

The bank has been dragged into the red by continuing credit losses in parts of
the business it is winding down or selling, although bad debt charges are
stabilising.

The taxpayer is liable for 90% of any hit above the £60 billion under the APS
although the recent tentative signs of improvement make losses less likely.
RBS is taking a bigger first loss than originally planned under the APS in
return for a smaller fee.

Chief executive Stephen Hester, who hopes to return the bank to profit in
2011, said today he was “upbeat but realistic” about the tough road ahead
for RBS.

The bank said bad debts were “plateauing” but Mr Hester warned: “We owe it to
everyone to be realistic and transparent.”

He said: “Economic recovery is likely to be slow and the pain of economic
adjustment will take years to subside. Our business will reflect these
issues.

“Profitability in our core businesses will recover fully only when our own
actions are also complemented by more normal interest rates and bad debt
experience.”

At the operating level, the bank’s losses were less than the second quarter of
this year, due to the non-core parts of the business, where losses shrank
from £4.98 billion to £2.72 billion.

The NatWest owner added that retail banking profits in the UK, Ireland and the
US remained “subdued” with deposit margins under pressure due to record low
interest rates.

The bank’s cost-cutting programme has also delivered further efficiencies but
RBS warned of more job losses as it adapts to “changed market realities”.

RBS announced another 3,700 job losses this week and Mr Hester said the group
was “more than halfway through” its major restructuring programme.

The company lent £15.2 billion to businesses under loan commitments during the
third quarter, although demand for lending is “muted” and customers still
have access to £27 billion in undrawn facilities.

RBS is being forced to sell off its Churchill and Direct Line insurance
business, more than 300 Williams & Glyn’s branches and parts of its
investment banking business in return for state support.

The businesses on the block generated around £1.1 billion in operating profits
for RBS last year.

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