Page last updated at 17:27 GMT, Monday, 19 January 2009

RBS shares plunge on record loss

RBS branch

Royal Bank of Scotland shares have plunged 67% after the bank said it was heading for a record loss.

The bank said it expects to report a deficit before write-downs of between 7bn and 8bn for 2008.

It will also write down assets, largely related to its takeover of ABN Amro in 2007, of up to 20bn.

RBS's final deficit is set to beat Vodafone's 2006 loss of 15bn, the current UK record. The bank also said jobs would go because of the downturn.

The firm's shares ended Monday trading down 23.1 pence to 11.6p.

As part of the government's package to rescue British banks announced on Monday, the Treasury said it would swap 5bn of preference shares for ordinary shares in the bank, taking its stake in RBS to nearly 70%.

'Ill-timed' takeover

Fourth-quarter 2008 results
Citigroup: $8.3bn (5.7bn) loss
Bank of America: $1.7bn loss
Deutsche Bank: Estimated $6.4bn loss (4.8bn euros; 4.4bn)
JP Morgan Chase: $702m profit
Source: Company statements

"Credit and market conditions in the fourth quarter of 2008 were particularly challenging," RBS said in a trading update.

RBS led a consortium, which also included Dutch bank Fortis and Spain's Santander, that bought ABN Amro in 2007.

BBC business editor Robert Peston said that the acquisition "must now rank as one of the worst and most ill-timed takeovers in history".

But he also added: "No one should fear, however, that this is a bust bank."

Shares swap

The agreement to swap preference shares for new ordinary shares will stop RBS having to pay the 12% fixed dividend that preference shares attract - worth 600m per year - and could allow it to increase lending.

Ordinary shares: Give you voting rights at general meetings, and pay a variable dividend depending on profits
Preference shares: Give you no voting rights, but pay a fixed dividend irrespective of profits

The government invested in both types of shares in RBS, Lloyds TSB and HBOS as part of its 37bn bail-out last October, bringing its stake in RBS to 58%.

But the banks have complained that the commitment to pay such a large dividend, regardless of their profit levels, is prohibitive.

Chancellor Alistair Darling said banks would be legally obliged to lend to companies and individuals as part of a new multi-billion package to restore confidence in the British banking industry.

"We have taken a greater shareholding in that bank [RBS] but what we said in return is you've got to lend about 6bn more to businesses, to people and the RBS group have agreed to that," he said.

The bank's chief executive, Stephen Hester said his mission was "to get a grip on the past and fix it".

"We now need to get our own house in order, and we are working purposefully to that end."

"It is our job to clean this up and make RBS strong again," he said.

Overseas cutbacks

Mr Hester warned that with economies around the world slowing, there was less demand for lending from potential customers, and that would inevitably have an impact on the banking sector.

"We, and all other banks, have to cut our costs, and of course that does involve jobs."

"We do know for certain there will be more credit losses ahead of us as the recession works its way through the world's major economies."

He also said that the bank's main retrenchment, would be in its overseas businesses, allowing it to concentrate on its core UK operations.

"We did expand too much outside the UK, and we need to shrink that back. Our strongest businesses are in fact, in the UK."

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Telegraph Barclays defiant amid rout in banking shares - 3 hrs ago
Glasgow Evening Times - RBS shares plunge as it faces record losses - 5 hrs ago
Glasgow Herald Royal Bank of Scotland shares opened higher today as the ailing bank clawed back a small slice of the 67% slump seen yesterday. - 6 hrs ago
Yorkshire Post Shares in RBS collapse as it faces huge loss - 9 hrs ago
Pittsburgh Post-Gazette RBS expects loss up to $41.3 billion - 10 hrs ago

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