RBS posts second-biggest loss in history of UK banking

 

ROYAL BANK of Scotland (RBS), owner of Irish lenders Ulster Bank and First Active, has posted the second-biggest loss in UK banking history after reporting a shortfall of £691 million (€883 million) for the first six months of the year.

The loss - the bank's largest since becoming a public company 40 years ago - was described as "a chastening experience" by RBS chief executive Fred Goodwin. He added that the loss was something he and his colleagues "regret very much".

A £5.9 billion writedown on risky assets sent RBS deep into the red for the six-month period, after the credit crunch cut the value of some of its mortgages and assets.

The first-half loss compared to a profit of £5.1 billion for the same period last year.

"I'm disappointed and numbed by it, but I'm also galvanised," said Mr Goodwin, adding that his task was not to let writedowns overshadow some strong performances during tough conditions.

The bank said it was building a comfortable capital cushion, reducing risk and pushing ahead with sales of assets, including its insurance business, as planned.

Cormac McCarthy, who is in charge of the bank's operations in Ireland, Europe and the Middle East, said the bank was "in a great position" since raising £12 billion through a rights issue in June.

"The capital we have raised means that we are one of the best-capitalised banks in Europe," said Mr McCarthy.

The performance of the Irish operations is now included in the results for the bank's retail and commercial banking divisions for Europe and the Middle East.

The rights issue has helped the bank repair its balance sheet, which had been stretched by writedowns linked to the credit crunch and its acquisition of ABN Amro last year.

RBS warned that a "deteriorating economic outlook" would compound problems in financial markets.

Shares in RBS, the UK's second-largest bank, rose 3.2 per cent as the loss was lower than feared and partially offset by an £812 million reduction in the value of its debt.

The market had been expecting the bank to report a £1.2 billion loss for the half-year, which would have made it the largest loss in UK banking history.

Analysts said the bank's capital ratio came in higher than expected and underlying earnings were resilient in the face of faltering economic conditions.

Bad debts on mortgages and other loans increased by 58 per cent in the six months to £1.5 billion, mainly due to charges in its Global Banking and Markets investment bank arm and in its US retail and commercial banking.

Asked if he was the right person to lead the bank, Mr Goodwin said: "I won't do this job forever, but right now you will find me extremely galvanised to do the task at hand."