Royal Bank of Scotland is in financial straits again. Well, knock me over with a core capital ratio.
Nearly a decade after the financial crash started with the freezing of wholesale financial markets and queues snaking round the block wanting to withdraw their money from a busted flush Northern Rock, RBS is still not back in annual bottom-line profit.
Now the bank – still 72 per cent-owned by the taxpayer – has failed the latest Bank of England stress tests of lenders’ balance sheets, meaning it will have to bolster its financial strength by about £2 billion.
The timing is not brilliant. RBS is awaiting a likely hammering from expected multi-billion-dollar fines from the US Department of Justice over the mis-selling of sub-prime mortgage-backed securities before the banking crisis.
Not unpredictably, RBS will refrain from tapping the stock market to make up the shortfall. Well, the last equity cash call didn’t go well: it preceded a £24bn record British corporate loss and has sparked a £4bn shareholder legal action set to hit the courts next year. The lossmaking taxpayer and other institutions who can’t see a renewed RBS dividend with field glasses would hardly be knocking down the door to take part in another rights issue.
Instead, RBS is most likely to step up the cost-cutting, the rundown of some loans and disposal of non-core assets to raise the necessary capital to satisfy the BoE and its financial strength monitoring arm, the Prudential Regulation Authority.
Perhaps the only positive note is that most independent critics are agreed that the fierceness of the Bank’s stress tests are striking: a synchronised UK and global recession on a greater scale than the last economic nadir of 2008.
Even so, after yesterday’s latest setback for RBS it is clear management’s efforts to create a stronger, simpler and safer bank is in a race with bumps in the road to see what its long-term future is.
At present, the lender is simpler and strapped for capital again. The jury is out on safer.
Turning the boardroom tables
Firstly, watered down employee representation in the boardroom. Now a moveable feast on binding votes on executive pay. Theresa May is perhaps for turning regarding business?