End of credit crunch not in sight but movement on selling unwanted debt

Published on Friday 8 August 2008 22:12

ROYAL Bank of Scotland has followed its rivals by off-loading unwanted debt assets, but it warned the market for the financial instrument was some way from a full recovery, writes Hamish Rutherford.

The Edinburgh-based bank, which outlined an intention to reduce its exposure to the credit markets at the time of its 12 billion rights issue, said its exposure to leveraged finance had fallen from 14.5bn, to 10.8bn in the six months to 30 June. The bank has since off-loaded a further 1.3bn.

On Thursday, Barclays revealed it had off-loaded loans and securities worth around 6.3bn in recent months, with Barclays Capital head Bob Diamond claiming "risk transfer has begun", a possible sign of the end of the credit crunch.

"Even difficult assets, even mortgage assets, are moving to new buyers," Diamond said.

RBS chief executive Sir Fred Goodwin told reporters yesterday there was some opening up of the markets. "It doesn't feel like we're heading back to the good old days, but we are seeing movement."

A spokeswoman for RBS said that although there were signs a market for the assets was emerging, it was too early to call the end of the credit crunch.

She said: "I wouldn't go as far as to say it was business as usual. There is a market for the assets, but the deals being done tend to be smaller."

RBS said the some of the disposals had been sold at better prices than it had expected to see, and it had not provided the finance for the deals.

The bank had expected to write down leveraged finance assets by 1.25bn, but yesterday this was revised to a loss of 863m.

Exane BNP Paribas analyst Ian Gordon said given that its rivals had been forced to increase their write-down provisions in the second quarter, yesterday's presentation "reaffirms our belief that, as far as allowed by accounting rules, RBS kitchen-sinked its provisions in April".