ROYAL BANK of Scotland (RBS) says its results were likely to be poor for the next two years as it reported a net loss of £1 billion (€1.18 billion) yesterday for the first half of 2009 following a quintupling of impairment charges to £7.5 billion.
RBS, which is 70 per cent owned by the UK government, said the buoyant performance of its investment banking arm, whose £4.9 billion operating profit saved it from posting a worse interim loss, was “likely to weaken substantially in the second half”.
Shares in the banking and insurance group fell 12.1 per cent to 46.2p in London, obliterating gains made on Thursday in advance of the results.
RBS was the last of the big UK banks to release its interim results. Its proforma £1 billion net loss compared with an £827 million deficit in the first half of 2008. The £1 billion loss however was flattered by a £3.8 billion gain on the redemption of some of its own debt.
Souring loans meant impairment charges rose from £1.5 billion to £7.5 billion in the first half and would “stay high for a while”.
RBS chief executive Stephen Hester said recent economic indicators made it tempting to think impairments might peak sooner than the second half of this year or in 2010, but he said he needed to see more evidence of recovery.
“There will be no miracle cure. There’s a significant danger that people get carried away with too much optimism too quickly. There are a couple of years at least of heavy lifting both for the world economy and for RBS. People need to understand that.”
RBS’s downbeat assessment was in sharp contrast to that of Lloyds Banking Group, which said on Wednesday it thought its impairment charges had peaked in the first half of this year.
Mr Hester was also more pessimistic than his peers on the sustainability of the recent strong performance by investment banks.
RBS’s investment banking arm saw operating profit rise from £1.1 billion to £4.9 billion. He said the performance was abnormal.
“Normal revenues in that business are significantly lower than the revenues that we and other investment banks reported in the first half of this year.” – Copyright The Financial Times Limited 2009
