4 November 2008

Royal Bank of Scotland Shares Hold Steady as Credit Losses Rise Sharply

Stephen Hester the new Chief Executive at the Royal Bank of Scotland reported further write downs of £206 million this morning and expects more to come in the third quarter.

Borrowing heavily to acquire international businesses such as the Dutch giant ABN AMRO, The Royal Bank of Scotland who also owns and the National Westminster Bank and a string of other businesses worldwide has suffered more than most as we move through the Credit Crunch.

Coming on top of write-offs totally £5.9 billion in the first half the £206 million write down may provide some relief to investors many of which expected worse. Stephen Hester speaking to the BBC this morning said:

"The scale of the market disruption and the economic downturn that is happening as a consequence means that credit losses are rising very sharply and other losses associated with market disruption and that meant that in the first half of this year we made a loss after taking account of those other items and we are signaling a similar scale of write offs in the second half."
Stephen Hester refused to be drawn on whether the Royal Bank would make a loss at the year end, but acknowledged that Investment Analysts were likely to be forecasting full-year losses. Hester, himself a former Investment banker said: "In a market that is so uncertain as current we can't make a forecast for the end of the year." Hester indicated, however, that there were likely to be significant write-offs ahead and that the impact of that would result in speculation about the annual results profits and said: "I expect that people may conclude that the profits will be difficult to achieve this year."

Acknowledging that RBS over-borrowed to buy ABN AMRO at top of the bull run Hester emphasised the Group needs to slash debt. Trading at a fraction of the 2007 high of 700p Royal Bank of Scotland shares fell 7% to 60p per share this morning, but later rallied to end the day steady at 65p capitalising the group at just £10.5bn, or just one times last years operating profit.

RBS Chief Executive Stephen Hester speaking to the BBC this morning

No comments: