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RBS says 2008 loss could hit £8bn RBS set to report record UK loss
(30 minutes later)
Royal Bank of Scotland (RBS) has said it expects to report a loss of between £7bn and £8bn for 2008. Royal Bank of Scotland is heading for a record UK loss after saying it expects to report a deficit before write-downs of between £7bn and £8bn for 2008.
The loss does not include any write-downs on the value of its acquisition of ABN Amro. RBS also expects to write down assets, largely related to its takeover of ABN Amro in 2007, of up to £20bn in 2007.
RBS also said it had agreed with the Treasury to swap the £5bn of preference shares the government holds for new ordinary shares. This means RBS's final deficit is set to beat the current record UK loss of £15bn, reported by Vodafone in 2006.
This will mean the government's stake in the bank will increase from 58% to nearly 70%. The Treasury has also swapped £5bn of preference shares for ordinary shares, taking its stake in RBS to nearly 70%.
No one should fear, however, that this is a bust bank Robert Peston, BBC business editor class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/">Read Robert Peston's blog 'Ill-timed' takeover
"Credit and market conditions in the fourth quarter of 2008 were particularly challenging," RBS said in a trading update."Credit and market conditions in the fourth quarter of 2008 were particularly challenging," RBS said in a trading update.
The bank said it was still assessing a goodwill impairment charge, expecting it to be between £15bn and £20bn, largely related to the acquisition of ABN Amro.
RBS led a consortium, which also included Dutch bank Fortis and Spain's Santander, that bought ABN Amro in 2007.RBS led a consortium, which also included Dutch bank Fortis and Spain's Santander, that bought ABN Amro in 2007.
BBC business editor Robert Peston said that the acquisition "must now rank as one of the worst and most ill-timed takeovers in history".BBC business editor Robert Peston said that the acquisition "must now rank as one of the worst and most ill-timed takeovers in history".
But he also added: "No one should fear, however, that this is a bust bank."
Shares swapShares swap
SHARE DIFFERENCES Ordinary shares - give you voting rights at general meetings, and pay a variable dividend depending on profitsPreference shares - give you no voting rights, but pay a fixed dividend irrespective of profitsSHARE DIFFERENCES Ordinary shares - give you voting rights at general meetings, and pay a variable dividend depending on profitsPreference shares - give you no voting rights, but pay a fixed dividend irrespective of profits
The agreement to swap preference shares for new ordinary shares will stop RBS having to pay the 12% fixed dividend that preference shares attract - worth £600m per year - and could allow it to increase lending.The agreement to swap preference shares for new ordinary shares will stop RBS having to pay the 12% fixed dividend that preference shares attract - worth £600m per year - and could allow it to increase lending.
The government invested in both types of shares in RBS, Lloyds TSB and HBOS as part of its £37bn bail-out last October. The government invested in both types of shares in RBS, Lloyds TSB and HBOS as part of its £37bn bail-out last October, bringing its stake in RBS to 58%.
But the banks have complained that the commitment to pay such a large dividend, regardless of their profit levels, is prohibitive.But the banks have complained that the commitment to pay such a large dividend, regardless of their profit levels, is prohibitive.