Royal Bank of Scotland to Report $37 Billion in Losses and Goodwill Writedowns

RBS
RBS to unveil up to $37 billion of losses
By Adrian Croft
18/01/09

LONDON (Reuters) - Royal Bank of Scotland will unveil up to 25 billion pounds ($37.30 billion) of losses for 2008 on Monday due to bad debts and writing off goodwill on its acquisition of ABN AMRO, a British newspaper said on Monday.

RBS will say it incurred about 7 billion pounds of losses in 2008 and that it is taking a goodwill writedown of between 15 billion and 20 billion pounds, The Daily Telegraph reported, calling it the "biggest loss in UK history."

RBS declined to comment on the report.

Britain is set to throw its banks another multi-billion pound lifeline on Monday by allowing them to insure against steep losses and guaranteeing their debt to stop the credit crunch pushing the economy into a deep slump.

The British government will swap up to 5 billion pounds of preference shares in Royal Bank of Scotland for ordinary shares, increasing its stake in the British bankL, a person familiar with the matter said on Sunday.

The move aims to remove pressure on RBS -- whose shares fell 13 percent on Friday -- to pay 12 percent annual interest on the preference shares.

The government owns 58 percent of RBS after buying 15 billion pounds of ordinary shares last November. The stake could rise to near 70 percent if all the preference shares are converted. RBS again declined to comment.

RBS, once Britain's second-biggest bank, was left short of capital as a result of hefty write-offs against debt-backed securities. The 2007 acquisition of parts of Dutch rival ABN AMRO put further strain on its capital reserves.

Second Largest UK Bank RBS to be Nationalized

If you watch Bloomberg television you may have seen the Royal Bank of Scotland commercial advertisements which display some of the worst corporate hubris imaginable.

RBS is the second largest UK bank by assets, following HSBC. It is being taken over by the British government. Their bailout plan involves the dividend being cancelled, and top management losing their bonuses and jobs, among other things.

AP
RBS to be taken over by British government
By Emily Flynn Vencat
Friday November 28, 12:51 pm ET

Royal Bank of Scotland says British government will buy majority stake in bank

LONDON (AP) - The British government will take over Royal Bank of Scotland Group PLC with a majority stake of almost 60 percent after the shareholders of the nation's second-largest bank shunned an emergency share issue.

The 20 billion pound ($31 billion) rescue takeover, the result of a plan announced last month, means that dividends on common shares will be scrapped and top executives' bonuses will be canceled. Chief Executive Fred Goodwin has resigned and Chairman Tom McKillop, who last week personally apologized to shareholders for the 85 percent fall in the bank's share value, has said he will retire next year.

RBS's 1.8 trillion pounds in assets are topped among U.K. banks only by those of HSBC. Its operations around the world include Citizens Financial Group, a commercial bank holding company headquartered in Providence, R.I., and Greenwich Capital Markets, based in Greenwich, Conn.

Fears about the solvency of RBS intensified this year as the global credit crisis contributed to it writing off 5.9 billion pounds ($9.2 billion) in bad loans. A third of that was due to last year's ill-timed euro14 billion acquisition of part of Dutch bank ABN Amro.

The government's shares will be held by a company called UK Financial Investments LTD. Its charge is to maximize value for taxpayers and prevent politicians from making business decisions about the bank.

"The investment will be managed at an arm's length from government," the Treasury spokesman said.

The bank, which has indicated it could post its first ever annual loss this year, was forced to resort last month to the British government's bailout plan, which offered as much as 37 billion pounds to prop up RBS and two other U.K.-based banks, Lloyds TSB Group PLC and HBOS PLC. In all three cases, the government guaranteed to buy any shares not purchased by investors.

At the government's request, RBS announced a share issue a month ago at 65.5 pence a share. But because its share price has fallen by almost a quarter since then, investors knew the government, in its role as guarantor of the issue, would end up having to shoulder the full amount when the deadline expired Friday. The result is an immediate $5 billion pound paper loss for taxpayers.

Only 0.2 percent of the shares were taken up by investors, leaving the state with the balance and boosting its ownership stake to 57.9 percent. Three-quarters of Friday's 20 billion-pound government investment was in ordinary shares and the remainder was preference shares.

Shares in RBS fell 2.4 percent to 53.7 pence on the London Stock Exchange Friday as investors braced for dividend payments to be cut.

As long as the government owns preferential shares, its restrictions on dividends and bonuses will be enforced. The bank had already scrapped a cash dividend for the first half of the fiscal year 2008, paying instead a dividend in shares.

A Treasury spokesman, who declined to be named because of government policy, called the government's imminent purchase of the stake in RBS "the next step" in "a process that supports financial stability, protects ordinary savers, depositors, businesses and borrowers; while safeguarding the interests of the taxpayer."

The drastic fundraising plan comes on top of a 12 billion pounds rights issue by RBS earlier this year -- at the time the biggest ever rights issue in Europe.

RBS shares were above 380 pence last December, and above 200 pence as recently as Sept. 26.