Gloom continues for RBS as extra £857m losses revealed

Published on Friday 8 May 2009 10:09

ANY hopes of a speedy recovery at Royal Bank of Scotland were dashed today as it revealed another £857 million of losses and gave fresh warnings about its outlook.

Chief executive Stephen Hester said the recovery of the business "will take years not months" and he said that 2009 and 2010 will be "very tough years for RBS".

The gloomy outlook came as RBS, which is 70.3 per cent owned by the taxpayer, announced bottom-line losses of 857m in the first three months of the year and another 2.9 billion of bad debt charges.

There was also an indication that even more tough times lie ahead for the Edinburgh-based firm as it described 3.5 per cent of its loan book as "non-performing and potential problem loans".

In comments that appear to contrast with Chancellor Alistair Darling's Budget forecast of growth returning in 2010, Mr Hester said: "Some commentators are beginning to talk about economic recovery; we remain cautious and continue to plan and manage our businesses in the full expectation that both 2009 and 2010 will be very tough years for RBS."

Although he highlighted a number of changes made since his appointment, Mr Hester said: "No-one should be in any doubt that this is a process that will take years not months. We remain fully focused on the task in hand and recognise all the responsibilities we carry."

Mr Hester said "good progress" is being made on the strategic plan to revive the business, due to be unveiled in August.

Actions and targets are to be set for each division of the group covering a three to five-year basis.

It is anticipated that the review will result in wide-scale job losses, including at its Gogarburn headquarters.

RBS said a buoyant three months for its investment banking division had been offset by the impact of record low interest rates on margins and steadily rising bad debts due to the recession. On a pre-tax basis the losses were 44m, but the 857m reverse came after tax, dividend payouts on Government preference shares, and money due to partners on the sale of its Bank of China stake.

The 2.9bn in bad debt charges compared with just 656m a year earlier.

"The results demonstrate the challenging conditions we face and that we expect to continue," said Mr Hester. "Our core customer franchises are facing the reality of a sharp recession following a year in which the credit markets crisis caused our worst ever performance.

"We have responded to the crisis and its ongoing challenges. We are fundamentally changing both the shape of the business and the way that we do it."