OMEN
02-26-2009, 01:32 PM
Royal Bank of Scotland (RBS) has announced the largest annual loss in UK corporate history.
RBS, which had to be bailed out by the government last year, said that its 2008 loss totalled £24.1bn ($34.2bn).
It also said it would put £325bn of toxic assets into a scheme that offers insurance for any further losses.
RBS is under fire over the pension of former boss Sir Fred Goodwin and the chancellor said the government had asked him to forego some of it.
The day's key developments include:
* RBS said it would make "sweeping" changes to its structure following the loss and did not rule out substantial job cuts
* It will put £325bn of toxic assets into a new government insurance program. RBS will be responsible for the first £19.5bn of any losses on the insured assets and pay £6.5bn to take part in the scheme
* The government will inject £13bn into RBS to strengthen its balance sheet on top of the £20bn the government already injected into RBS last year. The bank will have access to another £6bn should it need it.
* The bulk of RBS's £24.1bn loss for 2008 stemmed from a £16.2bn write-down of assets, which was mainly linked to its purchase of ABN Amro
'Unprecendent turbulence'
Chairman Philip Hampton blamed the massive loss on the "unprecedented turbulence" in financial markets and deteriorating economic conditions around the world.
"We owe our continued independence to the UK government and taxpayers and are very thankful for their support," he said.
RBS, which runs NatWest, said it would pay £6.5bn to the Treasury to take part in the Asset Protection Scheme.
He warned that 2009 would be another tough year for the 282-year-old bank.
The bulk of the losses came as RBS made a £16.2bn write-down on poorly performing assets, mainly resulting from expensive acquisitions made during the height of the boom.
RBS's former chairman has acknowledged that its 2007 decision to buy Dutch Bank Dutch bank ABN Amro, which was heavily exposed the sub-prime crisis, was a "bad mistake".
US bank Charter One, which it bought in 2004, has also experienced problems.
It said underlying losses totalled £7.9bn.
Prior to RBS's announcement, the biggest annual loss of any UK corporation was the £14.9bn loss reported by Vodafone in 2006.
Pension controversy
RBS is under heavy criticism after the BBC learned that Sir Fred Goodwin, the bank's former chief executive, is already drawing a pension of £650,000 a year, despite only being 50.
Stephen Hester, RBS's new chief executive, said that the pension arrangements for his predecessor came under a legal agreement that the government was part of.
"I understand this is legally binding on all parties," he said.
However, Chancellor Alistair Darling said that government lawyers were looking to see what could be done to claw back some or all of the pension.
"You cannot justify these excesses when you have a failure of this magnitude," he said.
"On a voluntary basis Sir Fred could resolve this," he added.
'Increased certainty'
The Asset Protection Scheme, backed by taxpayers, aims to strengthen bank balance sheets and encourage banks to lend more to firms and individuals.
RBS said it would be liable for the first £19.5bn in losses on the assets insured as part of the scheme, with the government shouldering the remainder.
In exchange for the government guarantee, RBS has committed to lending £25bn in 2009 - £9bn of mortgage lending and £16bn of business lending.
"Participation in this scheme would assist us in reducing risk for shareholders whilst providing greater support for UK customers via increased lending," said Mr Hester.
"It would provide increased certainty to the market by limiting potential losses on a significant proportion of our balance sheet."
Lloyds Banking Group is also expected to take part in the scheme, which could see taxpayers guaranteeing up to £600bn worth of toxic debt.
RBS said the Treasury was also injecting a further £13bn into the bank, in exchange for shares, to further support lending. It said that another £6bn would be available should RBS need it.
BBC business editor Robert Peston says that RBS is being shored up in what some will see as Britain's biggest ever bailout.
He adds that the losses borne by taxpayers as a result of the new scheme could be substantial in a prolonged, severe recession.
Shake-up
Mr Hester also announced a "sweeping" shake-up of the group's business as it aims to cut costs by £2.5bn a year.
He said that the bank would be separated into two arms, with the bank's riskier assets and operations grouped together.
The bank's overseas business would be cut back, with its operations to be reduced or sold in 36 of the 54 countries it works in.
He said that job cuts would be substantial but gave few details, angering union representatives.
Reports had suggested job losses could total 20,000.
"We are extremely frustrated by the lack of clarity over the company's restructuring proposals with no firm detail on jobs," said Unite's joint general secretary, Derek Simpson.
"The uncertainty hanging over the heads of these workers is unacceptable."
BBC
RBS, which had to be bailed out by the government last year, said that its 2008 loss totalled £24.1bn ($34.2bn).
It also said it would put £325bn of toxic assets into a scheme that offers insurance for any further losses.
RBS is under fire over the pension of former boss Sir Fred Goodwin and the chancellor said the government had asked him to forego some of it.
The day's key developments include:
* RBS said it would make "sweeping" changes to its structure following the loss and did not rule out substantial job cuts
* It will put £325bn of toxic assets into a new government insurance program. RBS will be responsible for the first £19.5bn of any losses on the insured assets and pay £6.5bn to take part in the scheme
* The government will inject £13bn into RBS to strengthen its balance sheet on top of the £20bn the government already injected into RBS last year. The bank will have access to another £6bn should it need it.
* The bulk of RBS's £24.1bn loss for 2008 stemmed from a £16.2bn write-down of assets, which was mainly linked to its purchase of ABN Amro
'Unprecendent turbulence'
Chairman Philip Hampton blamed the massive loss on the "unprecedented turbulence" in financial markets and deteriorating economic conditions around the world.
"We owe our continued independence to the UK government and taxpayers and are very thankful for their support," he said.
RBS, which runs NatWest, said it would pay £6.5bn to the Treasury to take part in the Asset Protection Scheme.
He warned that 2009 would be another tough year for the 282-year-old bank.
The bulk of the losses came as RBS made a £16.2bn write-down on poorly performing assets, mainly resulting from expensive acquisitions made during the height of the boom.
RBS's former chairman has acknowledged that its 2007 decision to buy Dutch Bank Dutch bank ABN Amro, which was heavily exposed the sub-prime crisis, was a "bad mistake".
US bank Charter One, which it bought in 2004, has also experienced problems.
It said underlying losses totalled £7.9bn.
Prior to RBS's announcement, the biggest annual loss of any UK corporation was the £14.9bn loss reported by Vodafone in 2006.
Pension controversy
RBS is under heavy criticism after the BBC learned that Sir Fred Goodwin, the bank's former chief executive, is already drawing a pension of £650,000 a year, despite only being 50.
Stephen Hester, RBS's new chief executive, said that the pension arrangements for his predecessor came under a legal agreement that the government was part of.
"I understand this is legally binding on all parties," he said.
However, Chancellor Alistair Darling said that government lawyers were looking to see what could be done to claw back some or all of the pension.
"You cannot justify these excesses when you have a failure of this magnitude," he said.
"On a voluntary basis Sir Fred could resolve this," he added.
'Increased certainty'
The Asset Protection Scheme, backed by taxpayers, aims to strengthen bank balance sheets and encourage banks to lend more to firms and individuals.
RBS said it would be liable for the first £19.5bn in losses on the assets insured as part of the scheme, with the government shouldering the remainder.
In exchange for the government guarantee, RBS has committed to lending £25bn in 2009 - £9bn of mortgage lending and £16bn of business lending.
"Participation in this scheme would assist us in reducing risk for shareholders whilst providing greater support for UK customers via increased lending," said Mr Hester.
"It would provide increased certainty to the market by limiting potential losses on a significant proportion of our balance sheet."
Lloyds Banking Group is also expected to take part in the scheme, which could see taxpayers guaranteeing up to £600bn worth of toxic debt.
RBS said the Treasury was also injecting a further £13bn into the bank, in exchange for shares, to further support lending. It said that another £6bn would be available should RBS need it.
BBC business editor Robert Peston says that RBS is being shored up in what some will see as Britain's biggest ever bailout.
He adds that the losses borne by taxpayers as a result of the new scheme could be substantial in a prolonged, severe recession.
Shake-up
Mr Hester also announced a "sweeping" shake-up of the group's business as it aims to cut costs by £2.5bn a year.
He said that the bank would be separated into two arms, with the bank's riskier assets and operations grouped together.
The bank's overseas business would be cut back, with its operations to be reduced or sold in 36 of the 54 countries it works in.
He said that job cuts would be substantial but gave few details, angering union representatives.
Reports had suggested job losses could total 20,000.
"We are extremely frustrated by the lack of clarity over the company's restructuring proposals with no firm detail on jobs," said Unite's joint general secretary, Derek Simpson.
"The uncertainty hanging over the heads of these workers is unacceptable."
BBC