RBS Posts Narrower-Than-Estimated Loss, Bonuses Rise

Feb. 25 (Bloomberg) -- Royal Bank of Scotland Group Plc,Britain’s biggest government-controlled lender, reported a narrower-than-estimated full-year net loss, and increased its pay and bonuses for investment bankers by 44 percent. The loss narrowed to 3.6 billion pounds ($5.5 billion) from 24.3 billion pounds a year earlier, the Edinburgh-based lender
said in a statement today. That beat the 6.01 billion-pound estimate of nine analysts surveyed by Bloomberg. RBS’s investment-banking unit swung into profit, and impairments “appear likely to have peaked,” the company said. The stock jumped as much as 8.6 percent. “We have a long and tough job ahead of us but we do believe that the worst is behind us,” Chief Executive Officer Stephen Hester said in a conference call with reporters today. There would be “difficult times ahead,” he said.

RBS, which needed 45.5 billion pounds in taxpayer-funded support, is undergoing the most complicated restructuring of any company in history, Hester said last month. The bank’s 2009 loss is slightly more than the cost of Britain’s war in Afghanistan, which cost about 3.5 billion pounds in 2009, according to House of Commons Defence Committee figures last year. The bank will pay about 1.3 billion pounds or 27 percent of revenue, compared with about 900 million pounds for the previous year, said two people briefed on the discussions. Barclays Capital, the investment banking unit of Barclays Plc, paid 38 percent of revenue in remuneration, while Goldman Sachs Group Inc. paid 36 percent.


Assets Decline
RBS’s loss was reduced by a one-time 2.15 billion-pound gain from a reduction in the pension plan over the third and fourth quarters. The bank, which is 84 percent owned by the U.K., also benefitted from rising profit at its investment banking unit and slowing impairments in the second half. “The numbers are more positive than the bears would have had you believe beforehand,” said Julian Chillingworth, who helps manage $21 billion including RBS stock at Rathbone Brothers Plc. “People are more interested in how quickly Hester can get the stock back to health.” The RBS loan-to deposit ratio declined to 135 percent, compared with 151 percent, indicating the bank is becoming less reliant on wholesale markets for funding. Total assets declined to 1.52 trillion pounds from 2.22 trillion pounds, the bank said. That’s still greater than British 2008 GDP of about 1.44 trillion pounds. Hester has pledged to cut the balance sheet. RBS rose 7.2 percent to 38.72 pence at 10:25 a.m. in London for a market value of 21.9 billion pounds.


Likely 2010 Loss
Hester told reporters the bank is likely to make a loss in 2010 and return to profit in 2011. Attracting and retaining
staff because of restrictions on bonuses is the biggest business problem that the bank faces, he said. “The road to recovery will be long and difficult, there is no sign of a resumption of the dividend, and the stock overhang of the government stake will remain a millstone around its neck for some time to come,” said Richard Hunter, Head of UK
Equities at Hargreaves Lansdown Stockbrokers. The investment bank had done better than rivals, while the retail and commercial units “had their worst year” because of the recession, Hester told reporters. RBS has cut almost 20,000 jobs since Hester was appointed CEO in November 2008, replacing Fred Goodwin.

Operating profit at RBS’s investment bank was 6.35 billion pounds compared with a loss of 1.27 billion pounds last year,
the bank said. For the fourth quarter, operating profit rose to 1 billion pounds, compared with a 2.8 billion-pound loss in the year-earlier period.


Impairments Rise ‘Sharply’
Operating profit at its U.K. consumer banking unit fell 68 percent to 229 million pounds. Profit fell 37 percent at its British corporate lending division to 1.1 billion pounds. The bank took a 335 million pound charge for bodily injury claims and weather claims at its insurance division, where profit fell 90 percent to 58 million pounds. Impairments on bad debt rose “sharply” to 13.9 billion pounds, almost matching the median estimate of 14.17 billion pounds of four analysts surveyed by Bloomberg. Hester, 49, will waive his right to a bonus of 1.6 million pounds amid public anger over such payments after taxpayers bailed out the banking system. The bank said its CEO had “significantly outperformed” his 2009 targets and that he would be rewarded “fairly, appropriately and at market levels.”

Executives at Barclays Plc and Lloyds Banking Group Plc are also forgoing bonuses. RBS has fallen 37 percent in London trading since the end of August to yesterday, making it the worst-performer in the five-member FTSE 350 Banks Index, which has fallen 2.8 percent. Barclays, Britain’s second-largest bank, more than doubled second-half profit to 7.5 billion pounds when it reported results. Lloyds Banking Group Plc, Britain’s biggest mortgage lender, reports tomorrow and HSBC Holdings Plc on March 1.

weren't there some recent big bids to buy up RBS?