Friday, May 8, 2009

RBS Swings To $1.3 Billion Loss, Predicts Tough Year

. Friday, May 8, 2009

By stockOzone team

Royal Bank of Scotland PLC said Friday that it swung to a net loss of 857 million pounds ($1.29 billion) in the first quarter of 2009, from a profit of 245 million pounds a year earlier, after taking impairment losses and write-downs of 4.93 billion pounds. RBS also warned that "buoyancy" in financial markets which boosted its investment bank isn't sustainable.

The bank said total income for the quarter rose 26% to 9.7 billion pounds. The results exclude those parts of ABN Amro that are attributable to the Dutch State and Banco Santander. CEO Stephen Hester said the results reflect buoyant revenue within its global banking and markets division, balanced against the negative impact of lower interest rates and the economic recession on its net interest margin.

RBS's share price has rebounded strongly since hitting a low of 10 pence in January, and particularly in the past couple of weeks, rising 27% since April 28. At Thursday's close, the stock was at 41.6 pence.

The group has embarked on a three- to five-year restructuring plan since posting a net loss of £24.2 billion for 2008 as a result of write-downs on loans and credit investments and on the value of businesses acquired from ABN Amro in 2007.

For the most recent quarter, RBS made a further £797 million write-downs on credit investments, down 44% from £1.41 billion a year earlier.

In February the group announced it would insure £302 billion worth of assets in the U.K. government's asset protection plan. Friday, it said between 75% and 85% of the write-downs incurred in the quarter were attributable to assets that will be covered by that program. It said it expects those losses to count toward the £19.5 billion first-loss tranche of the plan.

The bank created a non-core unit in February that comprises assets totaling £240 billion, to be spun off or disposed of in the next three to five years. Friday, RBS said it has made progress on its disposal program. It said it has had "encouraging interest" in its Asian retail and commercial business, but that in order to protect shareholder value, the pace of the sale will be slowed until markets normalize.

Disclosure: Author does not own any of the stocks discussed here.

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