RBS is optimistic of beating credit crunch

Published on Wednesday 11 June 2008 10:29

ROYAL Bank of Scotland said today that it remains "very much open for business" despite caution over a worsening economy and tough market conditions.

The Edinburgh-based firm, which earlier this week revealed a successful outcome of its 12 billion cash call to shareholders, said trading in many of its businesses remained "good" at the beginning of this year.

But it admitted that results have been hampered by deteriorating credit markets. Investors had feared that the firm might reveal fresh writedowns from the credit crunch in today's update on current trading.

But the firm said writedowns had not increased above the 8.4 billion it has already revealed.

Sir Fred Goodwin, chief executive of RBS, said: "The trends which we have experienced so far in the second quarter are consistent with those referred to in our (earlier) interim management statement.

"Whilst we remain very much open for business, our risk appetite is tempered by a cautious stance in relation to short-term economic factors and market conditions."

It said on Monday that 95 per cent of the new shares offered in its controversial rights issue had been snapped up by shareholders – boosting its stretched finances.

Today it said that "good progress" is being made regarding the integration of ABN Amro, with both income benefits and cost savings slightly ahead of targets.

And it indicated that overall results are expected to "remain satisfactory".

In its pre-close trading update, RBS said: "While the global economic outlook is placing strains on a number of business sectors, the group's loan portfolio remains robust, with a continued reduction in UK personal sector impairment losses but increased US impairments, principally in a specific retail portfolio, as previously disclosed.

"Although there has been little change in current corporate and commercial credit metrics, we continue to monitor forward-looking indicators closely."

The company is currently trying to raise around 7bn for its insurance business, which includes Direct Line and Churchill.

Talks with potential buyers are continuing but Sir Fred said RBS would not be held to a timetable for the disposal.

RBS is expected to make around 9.6bn in pre-tax profits this year despite the slowing economy and the impact of the credit crunch, although Sir Fred said a "steady as she goes" approach is being taken. "It's clear that things are changing out there, and the risk environment is changing, and that is reflected in the business that we are doing," he said.

RBS said its loan portfolio remained "robust" although the group had little update on current trading after its more detailed statement accompanying the rights issue announcement at the end of April.