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Rbs Profits Rise 9 Per Cent Despite £2.5 Billion Writedown

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http://business.timesonline.co.uk/tol/busi...icle3450534.ece

Royal Bank of Scotland reported a 9 per cent rise in underlying profits to £10.3 billion for 2007, despite a £2.5 billion writedown related to turmoil in global credit markets.

RBS, the UK's second-largest bank, faced a £1.6 billion writedown related to losses from its US mortgage and leveraged finance exposures. ABN Amro, the Dutch banking giant it recently acquired, suffered an additional £900 million.

The bank said that the losses contributed to a 2 per cent fall in profits from its global markets and investment banking division to £3.7 billion.

However, overall the results were supported by strong performances from RBS’s wealth management, retail and UK corporate banking divisions.

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Guest DissipatedYouthIsValuable

Anyone know just how off balance sheet 'assets' of the MBS/CDO variety, for which there is no market, have been valued by accountants?

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The thing to bear in mind about the UK banks is how short a time they have been exposed to the credit crunch in these results. If the results are to the end of 2007 they will only have had 4 months of activity impacted by the 'crunch' proper. Now they are coming to terms with the fact that the market for dodgy mortgage backed securities is not opening again any time soon, IMHO the 2008 results will be the ones to watch. Just like the LR is a lagging indicator, these results include a large period of HPI and unfettered MBS packaging that has gone, and gone for ever.

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There's something fishy about the run of good results from banks. I'm no financial whizz, but something is not stacking up. Could it be anything to do with what is addressed in the following article on FTalphaville? I know it refers to Citi but the same could apply to other banks.

Beyond subprime

The losses just keep on stacking up for Citi.

With another $12bn writedown in the offing, you might hope for a little clarity from Citi’s management. Admittedly, the bank’s 10-K, does point to new areas of concern, albeit rather elliptically:

There is a risk of a U.S. and/or global downturn in 2008. A U.S-led economic downturn could negatively impact other markets and economies around the world and could restrict the Company’s growth opportunities internationally. Should economic conditions further deteriorate, the Company could see revenue reductions across its businesses and increased costs of credit. In addition, continuing deterioration of the U.S. or global real estate markets could adversely impact the Company’s revenues, including additional write-downs of subprime and other exposures, additional write-downs of leveraged loan commitments and cost of credit, including increased credit losses in mortgage-related and other activities.

It’s interesting that Citi agree with external analysts and quite openly moot writedowns on their leveraged loan book. A disclosure European banks seem loath to go near.

Also observed from the 10-K, the Wall Street Journal notes that Citi piled up daily losses of more than $100m on 15 separate occasions. Here’s the rather dull histogram behind that stat (page 63):

What we’re curious about is that little footnote. Here’s an expansion of it:

Due to the difficulty in estimating daily profit and loss in the ABS CDO market, those trading-related revenues, including recent subprime-related losses, are not included in current VAR calculations and thus are not included in the Histogram of Daily Trading-Related Revenue.

So $39.8bn of subprime CDO assets are excluded from Citi’s trading VAR calculations. Possibly that’s excusable given the systemic and realised collateral crisis for subprime MBS.

But all the other CDO trades are excluded as well: synthetic corporate CDOs and CLOs for example, the unwinding of which has recently been sending credit indices spiralling.

Non-mortgage CDOs don’t yet warrant a detailed mention anywhere in the 10-K. The point is, those losses are not being driven by collateral issues, but by the technical factors causing the current conditions in CDS markets. Losses on synthetic ABS CDOs, CLOs and such like are pure trading losses. There’s no justification for omitting them.

This entry was posted by Sam Jones on Tuesday, February 26th, 2008 at 14:43 and is filed under Capital markets.

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The thing to bear in mind about the UK banks is how short a time they have been exposed to the credit crunch in these results. If the results are to the end of 2007 they will only have had 4 months of activity impacted by the 'crunch' proper. Now they are coming to terms with the fact that the market for dodgy mortgage backed securities is not opening again any time soon, IMHO the 2008 results will be the ones to watch. Just like the LR is a lagging indicator, these results include a large period of HPI and unfettered MBS packaging that has gone, and gone for ever.

Exactly, these results are a look backwards. The share price for RBS will be based on performance and prospects going forwards and that will include whatever gets thrown at it over 2008, the year that even the perma-bulls are admitting will be tough.

I see a lot of people on various boards taking comfort from these figures (which aren't even that good IMOP) and the divi, fair enough. What I don't understand is those who are trying to buy the bottom in a very unstable market with the expectation of making quick and easy profits. Sure, they all say they're 'in it for the long term', but I really don't believe they know just how long that can really mean.

Just like building shares, the downside is very real and still very large, anyone who thinks otherwise is effectively baring their a**e-cheeks to the market and hoping it doesn't feel frisky.

Edited by marceau

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Just like building shares, the downside is very real and still very large, anyone who thinks otherwise is effectively baring their a**e-cheeks to the market and hoping it doesn't feel frisky.

muahahahahahaha

I dont understand the need for them to increase divi's when they need money to repair the balance sheet. RBS shares are unchanged - so the market hasn't responded positively to the results.

In the months ahead we'll see a lot more writedowns coming thru.

Edited by beans on toast

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To my mind, bank 'profits' are irrelevant.

They are put out there purely to protect the share price.

What matters is the change in behaviour being forced onto the banks by off-balance sheet figures. These changes are the only game that matters in the real world.

Of course the combination will lead to very bad press for the banks as people are forced into more expensive mortgages and kicked out of 'their' homes by banks that to the simple appear rich.

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To quote a poster from ADVFN:

"No rights issue

No significant capital issue (at least nothing that won't be fixed)

No dividend cancellation or cut

No loss

No growth problems

No ABN integration issues

No $15bn write-down

No cap-in-hand BoE borrowing

No hidden $12.5bn black-hole deamon

No toxic cancerous debt disintegrating the balance sheet

No mass resignations by the board

No firesale of assets"

And the share price is basically unchanged. I love this market! Divi increase slightly underwhelming but 5% is still above inflation. Payday tomorrow and time to load up on RBS.

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  • 297 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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