RBS shares collapse as bank warns of record loss

Published on Monday 19 January 2009 09:35

SHARES in Royal Bank of Scotland plummeted today after the beleaguered lender revealed it was on course for a record annual loss for a UK company.

RBS shocked the City as it estimated bad debts and the lower value of its acquisitions could leave it as much as 28 billion in the red for 2008. This is higher than the 15 billion set by mobile phone group Vodafone in 2006.

Shares in the firm, which is 58% owned by the Government, slumped by more than 40% at one stage today, leaving the stock at a 23-year low.

RBS said a review of past acquisitions, most notably its share of Dutch bank ABN Amro, would result in a non-cash hit of between 15 billion and 20 billion. It also expects core losses of between 7 billion and 8 billion as a result of credit and market conditions in the fourth quarter of the year.

Asked about the record losses, Prime Minister Gordon Brown voiced his anger about the bank's decision-making, in particular international investments "that were clearly wrong investments".

He added: "Today's write-off by the Royal Bank of Scotland is for irresponsible losses accumulated in American sub-prime markets that partly derive from the acquisition of the Dutch bank ABN Amro."

However, he refused to say whether action should be taken against former chief executive Sir Fred Goodwin or other senior figures over "irresponsible" behaviour.

RBS also revealed today that the Government would increase its stake in the bank – likely to be around 70% – after the Treasury agreed to replace 5 billion of preference shares with new ordinary shares.

The move, which takes RBS a step closer to full-blown nationalisation, removes the annual cost of preference share dividends of 600 million and is expected to bolster the group's cashflow.

It said it intended to increase lending across its UK businesses by 6 billion, extending the lending commitment it gave in October in respect of UK mortgage and corporate customers.

Chief executive Stephen Hester, who took over from Sir Fred last year, said the dislocation of credit markets and the economic conditions continued to hit the bank hard.

He added: "We are making progress in recognising excess risk and dealing with it. In this context, the support we are receiving from Government benefits all our stakeholders and enables us to provide more customer support in return."

The group owns the Citizens commercial bank in the US and has a large investment banking presence in America, while it also operates across Asia and provides a wealth management service, through its private bank Coutts.

It gained a chunk of ABN Amro's European and global assets when it led a consortium takeover of the Dutch bank last year.