Royal Bank of Scotland Group Plc, the UK’s second-biggest bank, posted a smaller loss than analysts estimated and said the 5.9 billion pounds ($11.4 billion) of writedowns it announced in April may be sufficient for the year.
The loss, the first since RBS went public 40 years ago, was 761 million pounds excluding units that it holds on a temporary basis, the Edinburgh-based bank said today in a statement. That compares with net income of £3.6 billion a year earlier. RBS rose as much as 3 per cent in London trading after it said asset sales and cost cuts are restoring depleted capital.
Chief Executive Officer Fred Goodwin called the loss “unsatisfactory.” RBS's first-half writedowns added to 2007 losses of £2.6 billion on US sub prime mortgages, leveraged loans and bond insurance. Goodwin increased credit risks when he bought the investment bank and Asian unit of ABN Amro Holding NV last year for $22 billion.
“ABN Amro integration looks ahead of schedule, which gives them a bit of credibility back, and capital looks a bit better,” said Leigh Goodwin, a London-based analyst at Fox-Pitt Kelton Ltd, who has an “outperform” rating on the stock. “There doesn't seem to be any unexpected bad news.”
RBS rose 4.75 pence to 237.75 pence at 9:30 am in London, valuing the bank at 38.5 billion pounds. The shares are down 37 per cent this year, more than the eight-member FTSE 350 Banks Index, which fell 21 per cent.
ABN Amro Partners: RBS and partners Banco Santander SA of Spain and Fortis of Belgium outbid Barclays Plc last year for ABN Amro, paying a total of $110 billion in the biggest banking acquisition in history. RBS said today that cost savings and revenue gains were double the bank's forecast in the first half.
RBS's first-half loss including units it holds for partners was £802 million, or 6.6 pence a share. The loss was smaller than the £1.16 billion average estimate of 10 analysts surveyed by Bloomberg.
Barclays, Britain's third-biggest bank, had first-half writedowns of £2.8 billion, it reported yesterday. Its net income declined a less-than-estimated 34 percent to £1.72 billion in the first six months of the year. Banks and brokerages have posted $497 billion in losses and raised $357 billion in capital since the credit crunch started.
Barclays and RBS have been hurt by a worldwide decline in securities trading following last year's collapse of the US subprime mortgage market. RBS's securities unit posted a loss of £2.9 billion, compared with a pretax profit of £2.2 billion a year earlier.
US Bad Loans: Profit at the US banking unit fell 32 per cent to £534 million as bad-loan provisions quadrupled. The bank has shut a mortgage-broker unit to control defaults, it said.
Profit at the insurance unit rose 41 percent to 513 million pounds, and rose 7 percent at the U.K. retail and commercial bank to 3.2 billion pounds, exceeding analysts' average estimate of 2.5 billion pounds.
RBS said it sold 5.25 billion pounds of loans it made for leveraged buyouts this year at a ``slightly better'' price than its April estimates, which reflected a 12 percent markdown.
Credit markets are ``thawing,'' said Goodwin, 49. ``There is business getting done. It doesn't feel like we are getting back to the good old days.''
RBS raised 12.3 billion pounds in June to shore up capital. Core Tier 1 capital, which measures a bank's ability to absorb losses, rose to 5.7 percent as of June 30 from 4.5 percent at year end, the bank said. The ratio was helped by the sale last month of RBS's 50 per cent stake in a consumer-finance venture with Tesco Plc, Goodwin said.
`Materially Ahead'
The increase in reserves is ``materially ahead of what we were expecting in April,'' Goodwin, told reporters today. ``It has taken a lot of the pressure off.''
RBS has tried to sell its U.K. insurance unit for as much as 7 billion pounds, according to people familiar with the matter. Barclays raised 330 million pounds by selling its U.K. life- insurance arm. RBS is also in talks to sell the securities units in Australia and New Zealand it purchased from ABN Amro.
RBS, which needs another 1.25 billion pounds to meet its 6 per cent capital target, can reach the target without selling the insurance unit, Goodwin said.
Goodwin and Chairman Tom McKillop, 65, have been criticised for agreeing to pay too much for ABN Amro before the collapse of the U.S. subprime mortgage market.
Overpaid
McKillop, who acknowledged the bank overpaid for ABN Amro, said RBS has an experienced management team that will serve shareholder interests. The bank has lifted capital and is under no pressure to sell assets, he said.
``We are now in a position where we will only consider the sale of assets where the valuations are attractive,'' McKillop said in a presentation to analysts in London.
RBS will pay its first-half dividend in stock rather than cash. It will offer investors one share for every 40 shares they hold to conserve cash, McKillop said.
To contact the reporter on this story: Ben Livesey in London blivesey@bloomberg.net
