Biggest ever loss forecast for RBS
Updated on 19 January 2009
Royal Bank of Scotland is on course for the biggest loss in UK corporate history.
RBS shocked the City as it estimated bad debts and the lower value of its acquisitions could leave it as much as £28 billion in the red for 2008. The previous record was £15 billion set in 2006 by mobile phone group Vodafone.
Shares in RBS, which is 58 per cent owned by the Government, slumped at one point by 70 per cent to 10p, down 24.7p. The FTSE closed down 38.59 points at 4108.47.
RBS said a review of past acquisitions, most notably its share of Dutch bank ABN Amro, would result in a non-cash hit of between £15 billion and £20 billion.
It also expects core losses of between £7 billion and £8 billion as a result of credit and market conditions in the fourth quarter of the year.
RBS also revealed that the Government will increase its stake in the bank - likely to be around 70 per cent - after the Treasury agreed to replace £5 billion of preference shares with new ordinary shares.
The move, which takes RBS a step closer to full-blown nationalisation, removes the annual cost of preference share dividends of £600 million and is expected to bolster the group's cashflow.
Asked about the record losses, Prime Minister Gordon Brown voiced his anger about the bank's decision-making, in particular international investments "that were clearly wrong investments".
He added: "Today's write-off by the Royal Bank of Scotland is for irresponsible losses accumulated in American sub-prime markets that partly derive from the acquisition of the Dutch bank ABN Amro."
However, he refused to say whether action should be taken against former chief executive Sir Fred Goodwin or other senior figures over "irresponsible" behaviour.
RBS said it intends to increase lending across its UK businesses by £6 billion, extending the lending commitment it gave in October in respect of UK mortgage and corporate customers.
Chief executive Stephen Hester, who took over from Sir Fred last year, said the dislocation of credit markets and the economic conditions continued to hit the bank hard.
He added: "We are making progress in recognising excess risk and dealing with it. In this context, the support we are receiving from Government benefits all our stakeholders and enables us to provide more customer support in return."
The group owns the Citizens commercial bank in the US and has a large investment banking presence in America, while it also operates across Asia and provides a wealth management service, through its private bank Coutts.
It gained a chunk of ABN Amro's European and global assets when it led a consortium takeover of the Dutch bank last year.
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