Royal Bank of Scotland Group (RBS), Britain’s biggest government-controlled bank, will cut about 2,000 jobs as writedowns on Greek debt and costs for compensating insurance clients pushed it into a first-half loss.
RBS became the third British bank to announce job losses this week. It will eliminate the posts in its securities unit over the next 12 to 18 months as it completes its integration of ABN Amro Holding, Chief Executive Officer Stephen Hester, said on a conference call today. RBS had a wider-than-estimated first-half net loss of £1.4 billion ($2.3 billion).
The purchase of ABN forced it to seek the biggest bank bailout in the world. The bank today set aside £850 million to compensate clients who were improperly sold personal-loan insurance and wrote down Greek debt by £733 million. The Edinburgh-based lender follows HSBC Holdings and Barclays in eliminating jobs as the sovereign debt crisis crimps trading revenue.
“If there was a more normal environment we would have looked at today’s numbers and thought they were a bit disappointing, but we wouldn’t have been too worried,” said Tom Rayner, an analyst at Exane BNP Paribas in London who rates RBS “outperform.” “These are not normal markets though. This is not about the results.”
RBS fell 5.1 per cent to 28.74 pence as of 12.26 pm in London trading, its lowest since 2009. The government paid about 50.2 pence a share for its 82 per cent stake.
GREEK EXPOSURE
RBS has cut 27,500 jobs since Hester took over from Fred Goodwin in 2008. HSBC pledged this week to eliminate 30,000 jobs by 2013 and Barclays said it will cut about 3,000. In all, European banks have slashed 230,000 jobs since the start of the financial crisis in 2007, according to Bloomberg Industries.
Revenue at RBS’s securities unit dropped 35 per cent to £1.55 billion in the second quarter compared with the first three months of the year. Revenue from the fixed-income, currencies and commodities unit tumbled 44 per cent to £987 million in the second quarter.
“In fixed-income, if you have a crisis around sovereign debt, which clearly spills across all fixed income markets, particularly the eurozone, which is one home markets, you’ll see subdued revenues,” Hester said. “These are markets to be careful not to be a hero — even if that means a slow result.”
VALUE-AT-RISK
RBS’s core Tier 1 capital ratio, a measure of financial strength, climbed to 11.1 per cent from 10.7 per cent at the end of 2010. The bank’s value-at-risk, or VaR, a measure of the sum that could be lost on a given day, declined 23 per cent in the second quarter, analysts led by John-Paul Crutchley at UBS in London said in a note to clients today.
“A reduced level of capital employed points to a more subdued performance in the remainder of the year and into 2012,” the analysts said.
UBS and Credit Suisse Group last week said that second-quarter earnings at their securities units dropped by 71 per cent. Barclays Capital this week posted a 27 per cent decline in pretax profit while HSBC’s investment banking profit dropped 12 per cent.
RBS had about £1.45 billion of Greek government bonds, the lender said today. It wrote down the bonds after signing the Institute of International Finance’s rescue plan last month.
France’s BNP Paribas, Credit Agricole and Germany’s Deutsche Bank have also written down their holdings of the country’s debt.
GREEK EXPOSURE
“Greece was the only significant sovereign exposure that we had inherited from ABN Amro among the countries first in the firing line,” said Hester, 50. “In Ireland and Portugal, the other two, although we have commercial positions inside those countries, our sovereign debt position is negligible.”
RBS’s first-half net loss compared with a profit of £9 million in the year-earlier-period and analyst estimates of a £571-million loss, according to the median estimate of five surveyed by Bloomberg. The loss widened to £897 million in the second quarter from a £528-million loss in the first three months of the year.
The bank follows Lloyds in posting a loss for the first half. Barclays, Standard Chartered and HSBC all posted a net profit for the first six months. HSBC reported a 36 per cent increase in first-half profit on August 1. Barclays said the following day profit fell 37 per cent to £1.5 billion as investment banking revenue declined.
Allianz profit falls 8.2%, misses estimates
Allianz SE, Europe’s biggest insurer, said second quarter profit fell 8.2 per cent, missing analyst estimates following writedowns on Greek sovereign bonds.
Net income declined to ¤1 billion ($1.4 billion), the Munich-based insurer said on Friday. That compares with the ¤1.28-billion average estimate of 10 analysts surveyed by Bloomberg. Allianz wrote down its Greek debt holdings by ¤326 million at the end of June.
