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Sancho Panza

RBS 9th straight year of losses.Taxpayers mugged off again.

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Shaun Richards 24/2/17

'Today we find ourselves arriving at what has become an annual event although sadly there is never any money for a party although we are invariably promised that there will be plenty of cash next year. This is of course the announcement of more bad figures from Royal Bank of Scotland as we look back over all the promises made on its behalf which stretch back now to the beginning of the credit crunch. Let us step back in time to the 13th of October 2008.and see what the then Chancellor Alistair Darling told us  in the Guardian.

There is every reason to be confident that, as we go through this, the British taxpayer will get his money back.

The UK taxpayer invested at around £5 per share and this morning’s price is £2.44 so it looks as though Alistair will have to remain confident for quite some time and maybe forever. Also we learn that so-called alternative facts come from official sources as well as unofficial. But as time has passed others have proclaimed triumph only to see disaster.

Along the way we have at least managed a little humour as this from Bluebullet on Twitter from 3 years ago shows.

Dear Dragons Den, I have 80% share. Losses this year are £8 billion. I am paying out £0.5 billion in bonuses. Would you like to invest? #RBS

 

Today’s data

Okay so what was the loss declared?

Royal Bank of Scotland has reported losses of £7bn for 2016, taking its losses since its 2008 government bailout to more than £58bn.

 

The taxpayer-backed bank has also admitted that it will not return to profit until 2018, indicating that it will report 10 years of losses before it returns to the black.

There are a litany of issues here as we note yet another large loss. For Mr McEwan there is an awkward trend to explain as losses have gone £1.5 billion then £2 billion and now £7 billion as he has promised improvements. For the UK taxpayer there is the issue that the losses since the bailout are now larger than the funds invested. Next there is the fact that things are apparently so bad even these serial fakers cannot claim a profit is just around the corner!

If we switch to the Financial Times we see two of my themes being deployed as a defensive mechanism. Firstly losses are always described as a one-off which are nine years and rising of them is risible and secondly the way a bit like inflation measure we keep getting them until the “correct answer” is given.

In total, these one-off conduct and restructuring costs amount to £10bn. This pushed down the bank’s capital reserves, with the common equity tier one ratio dropping to 13.4 per cent, from 15.5 per cent a year ago. On a pre-tax basis, RBS reported an operating loss of £4.1bn, compared to a £2.7bn loss a year earlier. Its core business, comprising commercial and retail banking, delivered its eighth successive quarter of £1bn operating profit, stripping out one-off items.

So it made a profit right?

Reform

I have been critical of other countries on such matters so it is now time to apply similar methodology to the UK and the botched efforts with Williams & Glyns should lead to sackings of those involved. From the Financial Times.

This includes the £750m cost for the new Williams & Glyn plan unveiled last week. RBS has spent some £1.8bn over a number of years on attempting to divest Williams & Glyn.

They have splashed the cash and then given up after buying time with our money in a saga rather like Novo Banco in Portugal.

There are also more problems on the horizon as of course RBS was involved in so much miss selling and the issues with small businesses seem to just grow and grow. As to optimism well there does not seem to be much on display here in this from the Financial Times.

Mr McEwan is targeting £750m of cost savings this year, as part of a total £2bn of planned cuts over the four-year period, which is expected to involve hundreds of job losses and branch closures.

Comment

Actually the banking environment is really rather favourable. For example the UK economy returned to solid economic growth nearly four years ago and the Bank of England regularly rustles up a new bank subsidy plan. The latest one called the Term Funding Scheme  has now grown with little public attention to just under £42 billion. On that theme there was this from City AM yesterday.

Mortgage lending hit £18.9bn in January, new figures have shown – two per cent up on the same month last year, and the best January since 2008.

Enough to cheer both a banker’s and a central banker’s heart. Indeed the theme has been reinforced this morning by mortgage approvals rising to above 44,000 in January according to the British Bankers Association. The most similar bank to RBS is Lloyds Banking Group so how did it do this year?

Pre-tax profits increased by 158% to £4.24bn, a level last seen in 2006 before the financial crisis. ( BBC )

Next nearest is Barclays so what about it?

The bank reported a profit before tax of £3.2bn for 2016, up from £1.1bn the year before. ( BBC )

As you can see if they are from Venus RBS looks like it is from Mars. It needs a change and needs to go one way or another. What I mean by that is the taxpayer should fully own it and raise the current stake of around 72% to 100% or it should be sold-off and left to stand on its own. The current half-way house is doing no good at all. The fact that Lloyds is now nearly fully in the private sector ( ~96% of shares) is a guide but maybe not as much as we think as of course the shares were more easily sold off because it was already doing better than RBS.'

 

 

Dread to think what'll happen when they start taking their London losses from the current drops in London.

Socialism for the rich and capitalism for the poor as they shut more branches and lay off more staff.

Just watched C4 news and MacEwan was asked about his salary by the reporter.Sad that the only news show that asks awkward questions is watched by noone.

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Has Ross McEwan done his Carney-esque "......challenging....... shrinking ....... legacy issues" speech yet?

Yellen and Carney are fine examples of people to whom other senior bankers can aspire. It's a special kind of person that can say the same thing month after month, year after year, get paid £millions and yet achieve zilch for society at large.

It's almost never 'what you know'.

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"The UK taxpayer invested at around £5 per share and this morning’s price is £2.44"

Why were they supposedly worth £5/share.

I have never understood why they didn't take 100% of the company for £1.

The bank is still worth nothing even with unlimited taxpayer support. 

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The losses nearly all relate to transactions made under Fred Goodwin's time in charge. The losses from this period still massively outweigh the profitable bits of the bank and there is nothing that the current management can do about it. 

By contrast, turning around Lloyds /HBOS was a piece of cake. The government has sold nearly all its Lloyds shares on the back of its recovery. 

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Stephen Hester was giving the job to unravel the mess. Just like he did at Abbey nationalwhich went bust with all its capital tied up in commercial lease ffs.

He jacked it in as it the fact that rbs asset base was junk and the losses immediate losses were political unacceptable. Probably.

I await Gorddy doing the right thing which is making up the losses to the uk tax payer.

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Must be a case of RBS f$$King up abroad, exposure to assets that will never recover like Spanish and Detroit property (purely speculation on my part to try and understand how this is impossible). A bit like HSBC that wrote down Continental Europe goodwill because the EU  looks like a basket case just now.

May be keeping things simple would have been best as opposed to a Goodwin type that went international.

Take Lloyds TSB that was nearly wiped out by its HBOS acquisition, but is 95% UK based. Well as we all know property in the UK was reramped after the 2009 crash, so bad debts almost zero. The only fly in the ointmnet was PPI, now completely reserved for. Forward price to earnings 9.7, forward yield 5.2%, debt to equity ratio has crashed to 43.9%..

The government has all but completely exited, about 3% of the shares left, in other words leave the investors to pick off the probable stellar returns going forward but continue to sink money into a sinking ship like RBS. Lose, lose for the taxpayer.

RBS is the chief 'don't touch with a barge pole share' in the FTSe by broker sentiment. It's a gamble now on insolvency, i guess if it pulls through there could still be money in it one day.

Edited by crashmonitor

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16 hours ago, Sancho Panza said:

 

The UK taxpayer invested at around £5 per share and this morning’s price is £2.44

Where does the 1 for 10 share swap in 2012 that cosmetically boosted the price from 23p to £2.34 fit into that?

Quote

 

In a letter to shareholders the state-owned bank complained that its lowly share price of 23.3p exaggerated the stock’s volatility in that small movements in price generated big percentage gains or losses.

Rather than rely on the bank’s lengthy rehabilitation under chief executive Stephen Hester, however, RBS wants to drive up its share price with a 10-for-one ‘reverse stock split’.

The purely cosmetic move will see the bank undertake a two-stage process. First it will divide its ordinary shares of 25p into one ‘intermediate’ share of 10p and a ‘deferred’ share of 15p. The intermediate shares will then be immediately consolidated, so that for every 10 intermediate shares investors will receive one share of £1. The deferred shares will then be surrendered and cancelled.

RBS says each ordinary shareholder’s ‘proportionate’ interest in its capital will remain unchanged, although the nominal value of the shares will go up.

At the time of writing the transaction would have generated a new share price of £2.34, a level RBS investors have not seen since 2008

http://citywire.co.uk/money/rbs-to-beautify-itself-with-10-for-one-stock-split/a584706

 

 

 

 

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As I understand it RBS has not yet agreed any settlement with the US authorities, as so many other international banks have done with multi $billion fines going the US way.   Things delayed with the US election and other matters 

It's a bit reachy but I would have thought it a good time to show deep loss and difficulty, and get as much bad news out there as possible, for some political maneuvering to perhaps have US side look sympathetically and limit the fine to the lower scale of things. 

A bit like the move in the first few seconds of this clip.   (Can't help but enjoy some of the 2nd Ray series of Minder from early 90s - when money wasn't always flowing nor foreverHPI.)

 

RBS going forward?   What has happened has happened, and I think the British Government is too politically involved to back down, and same for any future Government.  They will want to get some value back for their position.  

Osborne did alright in late 2015 selling a tranche at fair price (but still a loss) against all the criticism that came his way for selling under the Labour price.  Probably followed advice.  Sometimes you need a stomach and not hold out for max-gainz.

If BREXIT happens, then perhaps it offers up some opportunity for bigger scale lending to UK companies from banks such as RBS, to compete with others we import big from (against tariffs), but I've discussed that privately with others and it's all a bit hazy.

Quote

George Osborne has tried to justify a £1bn loss on the first sale of shares in Royal Bank of Scotland in the face of criticism from politicians and City analysts by saying it was the right thing to do for the British taxpayer.

...The £2.1bn of shares were sold at 330p – below the 337p at which they closed on Monday and less than the average 502p that the taxpayer paid for them. If all the shares were sold at this price, the loss would be £15bn. The bank’s shares ticked higher to close at 339p on Tuesday.

https://www.theguardian.com/business/2015/aug/04/rbs-sell-off-george-osborne-defends-1bn-loss

 

 

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  The various losses amounting to RBS total loss of 54bn since its bail out are detailed quite well here.

https://www.google.co.uk/search?hl=en-GB&ie=UTF-8&source=android-browser&q=breakdown+of+rbs+losses+and+reasons+since+2008&gfe_rd=cr&ei=BHqxWLG0IO6sgAbR0oXQDg&gws_rd=ssl#gfe_rd=cr&gws_rd=ssl

Having worked on Williams and Glyn i can tell you there were two significant problems there.

- W&G was based on an almost exact clone of RBS taken approx 3 years ago. The RBS of 3 years ago is radically different to todays RBS. Todays RBS having cut jobs, offshored streamlined systems etc. RBS today is still a dinosaur compared to most banks but W&G is much much worse (higher costs , less profitable) as it hasnt seen any of the last 3 years 'improvements'...it has stayed frozen in time like a fly in amber waiting for someone to press the on switch. Whoever bought it would have their work cut out for them modernising it and would probably just asset stripped it for customers.

- Govt and the EU were woried that if RBS threw in the towel on W&G for the third time, each time roughly 2 years after starting, then that could potentially be at the most sensitive time for brexit, just before the 2 years is up. No one wanted RBS to be a pawn or make things more complicated.

Apparently the 'remedy' put forward last week is largely similar to a similar suggestion put forward 6 years ago - rejected by rbs managment, govt and HM treasury at the time. At least £3Bn pissed up the wall since then to effectively come back to that same suggestion 6 years later.

If the govt doesnt want to sell the shares (i would have thought it would dilute the share price massively if they became available publicly) the other option is a repayment plan, with an underlying profit of 4bn before adjustments it'll only take another 13-14 years or to repay it without interest. 

Its ironic HMT have treated RBS so well as a debtor when RBS have gouged their customers aggressively during that time.

The brutal truth is the costs and debts of RBS are those of a massive international bank. RBS has been massively downsized since then and in its current shape and form it isnt worth the £54Bn spent on it by HMT and i see no will it ever meaningfully repay £54Bn. In 2014 according to motley fool the net asset value of RBS was 60Bn and had been dropping significantly year on year. 

RBS isnt going to be an efficient bank (or meet its core cost targets) until it radically changes its attitude to IT and systems. Instead of making cuts or renegotiating contracts here it continues to miss the costs mark blindly gouging its workforce time after time to hit costs targets. 

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The thing is so my accountant said... is that if businesses incorporated or not if you don't make money for 6-8 years Inland Revenue (this was a long time ago) will seek to wind up your company.

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4 hours ago, regprentice said:

  The various losses amounting to RBS total loss of 54bn since its bail out are detailed quite well here.

https://www.google.co.uk/search?hl=en-GB&ie=UTF-8&source=android-browser&q=breakdown+of+rbs+losses+and+reasons+since+2008&gfe_rd=cr&ei=BHqxWLG0IO6sgAbR0oXQDg&gws_rd=ssl#gfe_rd=cr&gws_rd=ssl

Having worked on Williams and Glyn i can tell you there were two significant problems there.

- W&G was based on an almost exact clone of RBS taken approx 3 years ago. The RBS of 3 years ago is radically different to todays RBS. Todays RBS having cut jobs, offshored streamlined systems etc. RBS today is still a dinosaur compared to most banks but W&G is much much worse (higher costs , less profitable) as it hasnt seen any of the last 3 years 'improvements'...it has stayed frozen in time like a fly in amber waiting for someone to press the on switch. Whoever bought it would have their work cut out for them modernising it and would probably just asset stripped it for customers.

- Govt and the EU were woried that if RBS threw in the towel on W&G for the third time, each time roughly 2 years after starting, then that could potentially be at the most sensitive time for brexit, just before the 2 years is up. No one wanted RBS to be a pawn or make things more complicated.

Apparently the 'remedy' put forward last week is largely similar to a similar suggestion put forward 6 years ago - rejected by rbs managment, govt and HM treasury at the time. At least £3Bn pissed up the wall since then to effectively come back to that same suggestion 6 years later.. 

I guess you are either ex-RBS or a consultant. W&G was /is a dogs dinner of a bank, but at least not weighed down with the investment banking assets. Could never see it working.

Edited by Ah-so

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10 hours ago, Democorruptcy said:

Where does the 1 for 10 share swap in 2012 that cosmetically boosted the price from 23p to £2.34 fit into that?

 

 

 

One of the most laughable bits of financial engineering ever.

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5 hours ago, regprentice said:

 

RBS isnt going to be an efficient bank (or meet its core cost targets) until it radically changes its attitude to IT and systems. Instead of making cuts or renegotiating contracts here it continues to miss the costs mark blindly gouging its workforce time after time to hit costs targets

Well,it worked out so well for Fred The Shred

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13 hours ago, Sancho Panza said:

Well,it worked out so well for Fred The Shred

Think of all the taxes and growth generated over the years of the good times.....pay back time.;)

 

 

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