Page last updated at 10:10 GMT, Tuesday, 4 November 2008

RBS braces for first annual loss

Sign outside RBS building
RBS has been hit hard by the global financial crisis

Royal Bank of Scotland has signalled it expects to make its first annual loss in 2008 as it unveiled more write-downs on assets hit by the credit crunch.

The beleaguered lender said bad debt charges and write-downs totalled 206m in the third quarter, on top of 5.9bn in the first half of the year.

RBS boss Stephen Hester told BBC News making a profit would prove difficult.

RBS also detailed plans to raise 19.7bn as part of the government's bank bail-out plan.

The bank's third-quarter write-down would have been higher, but accounting changes relating to the way securities are classified provided a boost of 1.2bn.

The firm said its operating profit in the first nine months of 2008, before credit market write-downs, was 8% lower than a year earlier.

Banks like RBS aren't supposed to make losses
Robert Peston, BBC business editor

"The scale of the market disruption and the economic downturn that is happening as a consequence means that credit losses are rising very sharply," Mr Hester said.

"I suspect that people may conclude that profits will be difficult to achieve this year," he added.

The firm reported in August a loss for the first half of the financial year of 691m.


Mr Hester said RBS troubles stemmed from the bank's decision to lend far too much in good times.


Through its investments it became far too exposed to disastrous sub-prime loans to US homeowners with poor credit histories. It also bought the giant Dutch bank, ABN Amro, at the height of the boom.

BBC business editor Robert Peston said it was momentous that RBS, which can trace its history back almost 300 years, was heading for its first full-year loss.

He said RBS had survived one set of multi-billion pound losses on the sub-prime phase of the credit crunch.

It would now be tested by rising impairment charges on more conventional lending as a recession made life tough for individual and companies with big debts, he added.

Dividends to resume

RBS said it wanted to raise up to 15bn from investors by selling shares at 65.5p each. If the shares are not taken up, the government will acquire them.

The government will also directly buy preference shares in the bank - worth a total of 5bn.

A class of shares that usually do not offer voting rights, but do offer a superior type of dividend, paid ahead of dividends to ordinary shareholders.

Under the terms of the government agreement, dividend payouts are restricted, directors' pay limited and banks are required to pay 12% a year interest on the preference shares.

RBS said it would buy back the preference shares "as soon as it is prudent to do so", which would allow it to restart dividend payments.

Mr Hester said he would be "disappointed" if he couldn't pay dividends again in 2010.

Lloyds TSB and HBOS are also taking part in the government bank rescue plan, whereas Barclays has raised cash from the Middle East.

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