Royal Bank of Scotland Group Plc said it may post a loss of as much as £28 billion ($41 billion), the biggest ever reported by a UK company, as the credit crisis worsens.
Britain’s biggest government-controlled bank may post a full-year loss before exceptional goodwill impairments of as much as £8 billion, Edinburgh-based RBS said in a statement on Monday. In addition, the bank may write down the value of past acquisitions by as much as £20 billion.
The loss would eclipse Vodafone Group Plc’s £22 billion net loss in 2006. RBS has been crippled by its acquisition of ABN Amro Holding NV’s investment banking assets three months before the credit crisis began, a takeover Chancellor of the Exchequer Alistair Darling on Monday called “disastrous.” The Treasury said on Monday that it may raise its stake in RBS as it announced the second British bank rescue in three months.
“I am angry at the Royal Bank of Scotland and what has happened,” Prime Minister Gordon Brown said at a press conference in London on Monday. The bank took “irresponsible risks,” in investing in US subprime mortgages and ABN Amro, he said.
Chief Executive Officer Fred Goodwin spent almost $90 billion on takeovers after he became CEO in 2000, culminating in his ¤14.3 billion ($19 billion) acquisition of ABN Amro in 2007. Goodwin was ousted in October after the government agreed to take control of the 282-year-old Scottish bank.
“The previous management made this disastrous acquisition of Dutch bank ABN,” Darling told BBC Radio 4 on Monday.
RBS shares dropped almost 20 per cent to 27.9 pence at 9:40 am in London trading, their lowest value since at least September 1988. The shares have slumped about 90 per cent in the past 12 months, cutting RBS’s market value to £10.9 billion.
More From This Section
“The numbers are truly horrible,” said Robert Talbut, who helps manage about $31 billion at Royal London Asset Management. “The government is very clearly in the driving seat, and I would expect RBS to shrink back to being a more UK-focused bank.”
The bank said it expects to post £8 billion of credit market writedowns for the full year, boosted by losses on US collateralised debt obligations. Credit impairment losses may total as much as a further £7 billion, including a £1 billion loss on its loan to bankrupt chemical maker Lyondell Chemical Co.
“We can all be sure there will be further significant credit losses, but we can’t be sure of what amount and what timing,” Stephen Hester, who replaced Goodwin as CEO, told reporters on a conference call today. “Significant uncertainties and risks inevitably remain.”
RBS issued its statement on the same day that the Bank of England announced measures worth an additional £100 billion to help banks access liquidity and boost lending. The package is in addition to the £250 billion Gordon Brown committed in October.
The bank will cut lending in international markets which saw “most of the excess balance sheet expansion” under Goodwin, Hester said today. “We are going to restructure and retrench to our most valuable customer franchise business,” in the UK.
Royal Bank of Scotland plans to replace the UK Treasury’s preference shares, which carry a dividend, with ordinary stock. RBS shareholders will be offered £5 billion of shares for 31.75 pence apiece, the bank said. If shareholders fail to take up their rights, the government’s stake in the bank will increase to 70 per cent from 58 per cent.
RBS said on Monday it would use the money saved by eliminating the dividends on the preference stock to boost UK lending by £6 billion. Increased lending to UK customers will only be on “commercial terms and to credit worthy people,” Hester said.