RBS: historic loss
Stephen Hester has today signalled that Royal Bank of Scotland will make a loss this year.
In an interview with me for the Today Programme, the new chief executive of the battered bank said that "people may conclude that profits will be difficult to achieve" for 2008 and that it "wouldn't surprise" him if analysts forecast a loss.
And although we've become inured over the past few months to the world's biggest banks announcing losses, it's still momentous that RBS is heading for the first full-year loss in its history.
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After all, RBS owns NatWest. It's supposed to be solid and dull, concentrating on providing very basic banking services to millions of individuals and businesses.
Banks like RBS aren't supposed to make losses, ever.
So where did it all go wrong?
Well Hester puts the blame squarely on "leverage", on the RBS's decision to lend far too much in the boom years.
It became far too exposed, though its investments, to those disastrous subprime loans to US homeowners with poor credit histories.
RBS increased this exposure through its imprudent, top-of-market takeover of a huge chunk of the giant Dutch bank, ABN.
But, perhaps as damningly, it provided excessive loans of a more mainstream sort to businesses and households that are beginning to have difficulty keeping up the payments.
So RBS - like HBOS - has just survived one set of multi-billion pound losses on the subprime phase of the credit crunch. And it's now being tested by rising impairment charges on more conventional lending, because the recession into which we're careering is making life tough for those with big debts.
That's why Hester was parachuted in as new chief executive. That's why RBS has gone cap in hand to the Treasury for £20bn of new capital from taxpayers.
Hester is determined to fix the bank, and fast. There will be job losses, he told me. Assets will be sold.
And he's desperate to redeem the £5bn of preference shares he's selling to the taxpayers as quickly as possible, so that he'll regain the freedom to pay dividends as and when he likes to shareholders.
He said that he would be "disappointed" if he couldn't pay dividends in 2010.
Strikingly, he didn't sound like an executive who feels that his room for manoeuvre is being excessively constrained by the supposedly stultifying interference of the Treasury.
He does, for example, believe that he can make increased credit available for small businesses and house purchase, as the Treasury wishes - although he's not promising that the credit will be cheap.
Here's the odd thing. Although it's profoundly humiliating for RBS that it's heading for a loss, in a way that's history - the inevitable consequence of previous mistakes.
RBS's darkest hour was a few weeks ago, in late September and early October, when the entire banking system was close to total paralysis.
As Hester conceded, a number of big banks suffered a flight of vital funds that took them to the brink of collapse.
RBS - and others - have been bailed out by taxpayers, to the tune of £5,000bn in support provided by governments across the world.
Without that support, Hester would now be - in essence - a financial undertaker, rather than a chief executive determined to restore strength and resilience to a pillar of the British economy.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~22~RS~)
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> RBS's darkest hour was a few weeks ago, in late
> September and early October, when the entire
> banking system was close to total paralysis.
I'm starting to get the feeling that you are
calling the end of the beginning (if not the beginning of the end) of this mini-depression. Can we start to assume that there'll be a short lull, followed by business as usual, or are we still in "shock-horror" mode?
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Just an accounting loss though isn't it? The debit is a result of too large a credit in the past so if anything they should restate prior periods and still show a profit in the current year.
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Is my money safe...
;)
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An interesting take here on RBS ...
http://energy.pressandjournal.co.uk/Article.aspx/902906/
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So, how will the Pension Funds exposed to RBS going to make up their shortfalls?
The media lead crisis of confidence has reached its final stages.
Unfortunately the hype will just exaggerate the problems.
Nationalizing repossessed houses, would be a good idea.
Instant Council Houses for those who need them, without the stress of house moving or homelessness.
Plus the possibility of a guaranteed sale price to the mortgage lender.
That would help reassure for the markets surely ?
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So RBS and HBOS need to make cost savings. An obvious one would be for them to stop printing their own bank notes. But the politicians wouldn't like that, would they.
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In the Metro newspapaer this morning there are two references to HSBC recieving funding from the government - Did I miss this? I thought they were the only one who wasn't struggling?
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It doesn't matter; from now on they will become more careful with risk they took.
Also most of these bad debts are provisions; once interest rates fall below a certain point and more people afford to pay their mortgages these provisions can be reversed.
More than government bailout we need interest rate cuts to solve the problem.
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Well then.What a surprise another Institution run by a bunch of incompetent egotisical idiots.
Its high time these reckers paid the true price of failure and dereliction of duty.
The Board of Directors must be subject to disqualiiation proceedings they must be persued to bankruptcy.
My local NatWest Manager told me they have been lending 7 times annual income for mortgages!
LUNACY.
SO HERES THE RESULT,NEVER MIND ALL THE STUPID FUNNY MONEY DERIVITIVE TRADES.
DOMESTIC LENDING HAS BEEN RECKLESS AND STUPID.
Over the next few years we will all now pay a very high price.
Alexander Curzon.
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Excuse me Mr Preston but I believe the taxpayers should be the new owners.
OWNERS!
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The Northern Rock bonus scheme of 60pc bonuses to 4000 staff would plug a sizeable whole in UKFI straight away, detracting from this news (if they're all one big happy company now).
At a conservative estimate of GBP15000 per staff member (and I believe the minimum is GBP14000, so it's very conservative), then this scheme will cost GBP36000000!
36m is a lot of redundancies that can be avoided. And NR staff will still get paid, just not exhorbitantly!
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Good interview by Robert Peston, snapping away at Stephen Hester's heels. The language used is plain and clear and that's one of the key reforms needed in the financial world if I'm ever going to trust a bank again with my money! Let's not use words like "leverage" if the word "debt" will do!
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I have said it before the sub prime problem in the UK will pail into insignificance compared to the coming crash in commercial properties and office devlopments.
There are huge swathes of empty new build and refurbished offices in City Centres. Many of the companies that fill them will cut back on staff in the financial services and call centre industries there will be even more empty floor space.
Banks like RBS piled into commercial property both as developers and financiers and dozens if not hundreds of developers will go to the wall over th next twelve months.
This is perhaps the end of the beginning not the beginning of the end.
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The state of our banking system shows that house lending is unsustainable, why the government wants to keep lending sums of money for people to buy homes in a recession is very dangerous, it's now very difficult for people to buy insurance to cover mortgage payments if they lose their job.
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What on earth does 'rising impairment charges on more conventional lending' mean? Or put another way these pieces would be a lot easier to follow if they were written with more plain English and less jargon.
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"Strikingly, he didn't sound like an executive who feels that his room for manoeuvre is being excessively constrained by the supposedly stultifying interference of the Treasury."
You keep trying to establish this same point, but I'm afraid that you'll have to do better than quoting a member of the establishment, appointed by the establishment, saying that what the establishment plans to do is hunky-dory by him.
What else is he going to say?
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"He does, for example, believe that he can make increased credit available for small businesses and house purchase, as the Treasury wishes - although he's not promising that the credit will be cheap."
Hilarious.. "Yes Gordon, we're making lots of it available, but no one can afford it, because of the hefty risk premium we need in these troubled times .. "
It just goes to show that the bravado of "forcing banks to lend money" is simply nonsense, and so it should be.
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Dear Robert
So if this is a crisis that was purposely planned "who did it"?
Maybe the SINOWAC, TROJAN VIRUS , being tracked by specialist computor security companies can put some light on the subject. It is so Serious that it is infecting Bank Accounts across the Globe, in excess of 500, 000 accounts and A Huge number of Banks are affected,?? So who is doing this and what are the real losses.?
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Ah, so they're having problems because the public that they put into a recession due to their lack of foresight and greed cannot afford to pay the loans back?
Time to rip up the current system and start again I say.
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#2 : shiveringphilmk
"Just an accounting loss though isn't it? The debit is a result of too large a credit in the past so if anything they should restate prior periods and still show a profit in the current year."
Absolutely. Profit and Loss accounts are not originated statements, really. They're just the reconciling items between two balance sheets from different points in time.
The point you make is that the opening balance sheet was wrong, and this is quite correct. The performance for the year should be the reconciliation between the "corrected" opening b/s and the closing b/s. The correction to the opening b/s should be reflected in a restatement of profits from prior years.
This approach should also be extended to GDP accounting, also. There's no doubt that a considerable part of prior years' economic growth is based on overstated asset value.
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As Automotive sales in the States have collapsed by up to 45%.
Year on year Car sales have dropped by over 25% in the UK so far.
I understand estate agent offices are closing at the rate of 100 or so per week.
Manfacturng in he UK is in its final decline.
NEW LABOURS financial services industry is in MELTDOWN.
On a personal front I have planned for a 30% fall in production in all our factories,over the next 18 months.
CAN MESSRS BROWN DARLING & lord MANDY
TELL ME WHEN WE CALL THIS A RECESSION?
BECAUSE A DEPRESSION HAS STARTED!
IT WILL LAST 4 TO 5 YEARS.
MEANWHILE WE KEEP OUR FUNDS IN IRELAND DUE TO THE 100% BANK GUARANTEE.
Alexander Curzon.
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A political point - this is a complete agony for Alex Salmon and the SNP.
The pride of Scottish banking, namely RBS and BoS, are on their knees with the begging bowl out to the Bank of England.
As an politically independent Englishman, I fully support the Scottish movement towards full independence, thus freeing us English too for those 'British' (sic) politicians at Westminster.
But there is no disguising that this is a heavy blow for us both.
Somehow, Scotland must find the way to retrieve and rebuild its banks.
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I left RBS and banking about 18 months ago and can confirm there existed a dangerous culture built on the breathtaking arrogance of its former head Sir Fred Goodwin. It is hard to believe he was ever a respected insolvency accountant.
Virtually nobody was refused credit. Even unemployment and a life lived at the margins of society on state benefits often failed to preclude large amounts of unsecured borrowing being agreed. The staff within their branches were bullied and nagged each and every day to meet extraordinary targets for loans, credit cards, insurance and mortgages regardless of the consequences.
The bank will survive but the sudden turning off of the credit tap to high risk low quality business is going to cost many their homes or jobs.
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RP> Banks like RBS aren't supposed to make losses, ever.
Wrong. All businesses are supposed to make losses. A business that never makes a loss is a scam.
That some bankers seem to think they are immune to risk merely typifies the foolishness that led to our current predicament.
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Looks like the bankers will still get their bonuses this year....
http://www.guardian.co.uk/business/2008/nov/01/royal-bank-scotland-vincent-cable
....perversely the taxpayers bank bailout money will ensure it!
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This comment was removed because the moderators found it broke the House Rules.
If you are a bank shareholder thinking about taking lagal action against any of the recently nationalised banks.....there are some useful legal contact names contained within the following article with regard to class action proceedings that you may wish to join.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3197798/RBS-HBOS-and-Bradford-and-Bingley-shareholders-consider-legal-action.html
Good luck!
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RBS was one of the largest payers of corporation tax - how will Gordon Clown make up those missing millions?
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Does anyone know how the US election might affect the markets? Is an Obama win going to lift share prices or would a McCain victory dampen the mood?
Or will it have no real effect?
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As banks refuse to pass on the interest rate cut, borrowers are getting all the sympathy. But what about savers? Can anyone justify banks immediately reducing saving rates by the full half-percent? Is it any wonder why they are reviled?
Thet accept the bail out and injection of taxpayers money, but refuse to be good corporate citizens. Why is this allowed to happen?
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#22
How would you suggest that Scotland retrieve and rebuild its banks when they are and always have been under the firm control and malevolent influence of the City of London and the Treasury?
At long last there is actually a small but growing minority who seem to have realised that compared with the Norwegian banks both HBOS and RBS have actually been about as much real strategic benefit to Scotland as the proverbial mammaries on a male bovine.
Perhaps therefore it would be kinder and strategically much more intelligent to let them go and in their place create at least one mutual style bank the remit of which is more limited but specifically aimed at improving the Scottish economy not the bank balance of its directors.
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#2 and #20 - Many of the loans and securties were valued by the market, and you could indeed have sold them at that value at the time. So it's debatable whether you can now say it was wrong. By that logic, you should restate profit for all previous years you owned any security or loan, as markets change their mind all the time.
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Now that Gordon has made Money so unfashionable that he can't give enough of it away, is there any chance of a Tax Reduction on the cards ?
I am sure he hasn't yet turned the tap off the Money Printing Inflation Generating Geyser so there must be a few quid left going spare,
But make it quick before a Pound is worth less than a Penny Sherbert
Thanks
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Hate to say this Robert but you really did a poor interview with Hester. The guy simply wouldn't admit that he and his banking associates had anything to do with the mess they are in. You should have pressed him harder. Not a good day for you Robert.
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Couple of questions about the accounting info:
Are these impairment charges against loans to UK households and businesses or are these more American trash assets being devalued?
With impairment charges on Financial assets, can these be revised upwards in future accounting declarations if the defaults on the loans turns out to be less than expected?
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In reply to other comments, I wish to point out that the only high street bank not struggling, is Santander who own Abbey and other interests. They have not asked the government for a bail-out due to the greed of executives in other financial institutions.
Indeed Santander are very hacked off that the government has been bailing out, because due to fore-sight, Santander have had nothing to do with American sub-prime, also due to them being a very wise institution who go for long term ideas, rather than get-rich-quick schemes.
To the person who asked "Is my money safe", I would say yes, so long as its with Santander, cos if you look at their savings accounts, loan rates even mortgage rates, they are market-leading, because while RBS HBOS et al recoup damaged figures, Santander do not have that problem. I don't work for Santander by the way, I just wish to point out where your money is good at the moment.
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Not directly related but of relevance.
Did UK banks package up UK mortgage debt into CDOs in the same way as the US banks did?
If so what is the state of these securities, have the institutions holding them had to make the same writedowns as for the US created securities.
Again if the default rate turns out to not be as bad as predicted can these 'writedowns' be reversed in future declared accounting statements.
For example most of the housebuilders have had to declare writedowns on the value of their land assets. When/if land rises in value surely they will reverse the writedowns into increased asset values?
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As time goes on i wish i had presented my WINDING UP PETITION against HALIFAX PLC in January 2007,maybe it would have flushed out this mess back then.
Alexander Curzon
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Post 15. Rising impairment charges on more comnventional lending means either
a) mortgage defaults and or repossessions or
b) personal loan default as people can't or won't pay back money they have borrowed or
c) commercial loan defaults i.e. companies have borrowed money and have gone bust or cannot pay loans back.
See my post 14 there will be a huge number of speculative developers and over leveraged "property tycoons" going to the wall in the next few months.
I wonder how much RBS have got tied up in the Icelandic companies overseas investment boom?
I also believe RBS are owed about GBP 150 million by the American owners of Liverpool FC amongst many others.
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# 27
You just showed what a mistake it was to do the nationalisation or bank rescue in this way (quite a similar mistake in Railtrack).
The regulator simply could have forced the banks to re-evaluate their assets then write off any discrepancy first against risk provisions then against equity, declare the banks concerned insolvent, nullify existing shareholder interests and the government could have simply recapitalise the banks.
The fomer shareholders could have sued the former boards, but it was their business and nothing to do with the new owner.
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"The pride of Scottish banking, namely RBS and BoS, are on their knees with the begging bowl out to the Bank of England."
Just as the Prime Minister is going round all the rich countries, shaking hands with suspected terrorists, with cap in hand begging them to "buy British" or is that "buy Britain" and bail out his bankrupt Labour Government.
Beats going to the IMF and all that bad publicity. This way he seems to be getting away with it because nobody's looked beyond his assurance that it's for the "world economy"
As always with Gordon Brown he says one thing and actually does something else.
Are we all so gullible?
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Oh and I forgot this link....
http://www.dailyrecord.co.uk/news/scottish-news/2008/11/03/exclusive-new-head-of-royal-bank-of-scotland-goes-foxhunting-and-hosts-posh-ball-86908-20864852/
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A large organisation, after making huge mistakes, and in a recession, doesn't make a profit.
Boo hoo.
Isn't that what all businesses do? Make a profit in the good times, and a loss in the bad times? Isn't that the definition of bad times, in fact? If every major company in the UK made a profit this year, we wouldn't be in recession, would we?
I don't really understand (well, I do - it's arrogance) why banks are so outraged when they can't make a massive profit, simply by existing. They're very quick to offer 'business advice' to customers, despite having never run a business themselves. They're very quick to pull the rug out from under profitable, long-lasting businesses, simply to cover for their own failings. But when this market reality impinges on them, they're shocked.
As long as depositors' savings are guaranteed (as they should always be in a modern state), who cares? Let them go to the wall and other, better-run banks (e.g. HSBC, Santander, etc) pick up the business.
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davidbarnes28 @ 36
Whilst the Spanish fellow who runs Santander is acknowledged in the business press as a master of banking ... why do we keep hearing that all might not be well with some of their South American 'investments'?
Remember Andy the Bulgars famous quote "Only the paranoid survive".
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# 36
While Santander is in a much better position than many of the others, being mainly a retail bank, its position is perhaps not that rosie. The classified loan stock keeps on increasing (especially those classified as "dubious"), which could be problematic as they could easily tip over to non-performing. At the same time their loan portfolio is shrinking. Moreover, they are particularly exposed in two countries that are the first to slip into recession in Europe: Spain and the UK.
Having said that their capital base is pretty strong, though after three acquisitions it could erode somewhat.
We will see.
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#36 Good point about Santander, I would however remind you there were part of the threesome that bought ABN AMRO at the top of the market.
These being Fortis (now bust) RBS (almost bust!) and Santander so if they have survived that debacle they must be pretty sound.
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#32
I appreciate your point, but I'd go on to say that the layman's view of company accounts is, in my opinion, that all the accounting that goes on during the year is about determining the surplus of revenue over cost, and that the closing nett worth of the company is a forced figure that is the combination of the opening nett worth and the profit for the year.
Whereas the reality is that the accounting is all about maintaining records of movements in assets and liabilities, and that the "forced" figure is the annual profit, which, in simple terms, is the difference between the closing and opening nett worths.
My purpose in seeking to highlight this point is that I think our recovery from this downturn will be made very much more difficult if the general perception is that the immediate pre-crunch levels of stated wealth are the starting point for post-crunch developments. And, more importantly, that post-crunch prosperity will continue on an upward trend starting from immediate pre-crunch levels.
What needs to be understood is that pre-crunch prosperity was in no small part based on an illusion of profit and wealth that was false, and that this illusion has been banished for a period that extends far beyond the resumption of normal economic activity post-crunch.
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one word - greed.
Global banks in general and UK banks in particular lending way in excess of what was prudent, driven by egotistical non bankers who couldn't understand why "pile it high and sell it cheap" stopped working for lending both in the UK and on the back of US debt "packages"
As an ex-banker, even at my lowly level we could see a day of reckoning as much as two years ago!!!!......no one was listening as long as the "perceived" profits kept coming.
#43 entirely valid - the banks won't make as much; what a shame!
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Any large business facing profit problems always reaches for the knife to shed staff. The question is how many job losses are there going to be - 20K suggested as likley at Lloyds TSB - HBOS. More obviously due at RBS. Significant numbers at NR, even if over time by natural loss. These are big figures and these are the ones made public. There will be many more by quieter piecemeal cuts. Towards 100K over the financial sector does not look a ridiculous figure over the next two years. That is before the impact in other sectors is looked at. It is difficult to see any great economic uplift before May 2010. Each recession that the UK faces appears to hit a different sector hard and subsquently there is limited growth in those affected sectors. The UK is essentially running out of sectors which can provide growth. There is a very noticeable silence from all political parties on the subject of where economic growth is going to occur, it is all more of a wishful incantation than strategy. Those businesses that say they are doing 'okay to well' are small in number, say 4 to 5 percent, in small niche markets. That is not a basis for the scale of recovery which is needed to take the UK forward. It very much looks as though the main strategy will boil down to simply trying to reboot and reinflate the UK housing market, whatever is said to the contary.
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43:
"As long as depositors' savings are guaranteed (as they should always be in a modern state)"
I assume you would be willing to extend it to all creditors? It's merely a political decision (I don't say, I don't agree with it), but why should depositors as creditors should enjoy a better protection than banks as creditors to people (oops, from the bail out they seem they are) or businesses as creditors to other businesses and the people (there's no protection there as far as I can see).
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So, Hester is going to pay back government loans by charging high interest rates and not passing on the benefits of the reduced bank rate to its customers.
If all the UK banks do this, it would make the recession worse and it would be even harder to revive manufacturing industry in the UK. Since manufacturing will be desperately needed to fill the gap left by the collapse of financial services, this means that the outlook for the UK economy would be very poor.
I am surprised that the deal that the government did with the banks, does not prevent them from behaving in this way.
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#22
Scotland WLL find a way to rebuild its Banks.
Plundering English taxpapayers money as they have done from Scotland for three hundred years will be the norm whilst at the same time fooling themselves about their carefulness with money.
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#15 - its a very good point. When I was a lad doing my accountancy exams, impairment was a term applied to fixed assets broken beyond use which then had to be written off, e.g. a 20 year old lorry with a broken axle . Leverage, or debt as it was known in those days, was dealt with through either the provision for bad debts, or debt wirtten off. It seemed a lot simpler then - perhaps some people think derivatives are fixed assets rather than packaged bad debt?
So in current speak, what will be the impairment charge to the taxpayer for the highly leveraged UK economy? Trillions at least.
Catch me on my next installment when I compare credit default swaps to my £10 bet on Newcastle being relegated this season!
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Our Prime Minister, Chancellor, Bank Governor and the FSA should have read Anthony Sampson's 1982 book 'The Money Lenders- Banking in a Dangerous World.' Too much cash chasing too few assetts in the Seventies, with predicatble consequences..
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#43 : sweetsmellofsuccess wrote:
"Isn't that what all businesses do? Make a profit in the good times, and a loss in the bad times?
Well, not exactly, no.
Shareholder owned businesses are funded in a number of ways, the consideration for some of which is given by making regular payments of interest. However, ordinary shareholders are not entitled to any contractual payment from the company, but they are kept happy by the expectation that the company will make a profit from the capital they have subscribed, and will be able to pay them a dividend out of that profit.
So investors in a company have a choice of receiving a contractual interst payment of, say 6% pa, or to become shareholders and receive a dividend that can fluctuate between nothing and infinity.
In the normal course of events you would expect a company with major shareholder funding to make a profit, even in bad times, because it has access to shareholder money interest free. So, even if it did nothing other than leave the money in a building society, it would make a profit, because there would be no cost to this money to charge against the BS interest.
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"Hester is determined to fix the bank, and fast ... assets will be sold"
so heaven help any customer with (or expecting) mortgage/loan arrears? Will they be selling off their mortgages to other banks like the old days? Can't remember what that's called, lost track of all these fancy names for banking tricks.
Another race to foreclose and repossess before the 17th Nov deadline for the Brown 'last ditch attempt to do whatever it takes to prevent repossession' or something or other..
About time you got off the fence RP and gave the Great and the Good a good roasting. Or would that be too close to crossing the bounds of good journalism for your ascetic style?
Crikey - I wish there were some investigative reporters with a bit of 'iron in the glove' on this website, the nightmare would be a bit more bearable.
GC
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Are you going to comment about the treasury committee yesterday?Surely that is about all of this mess not only RBS?
Re-that committee. What a pity John McFall didn't press Darling(shouldn't it actually have been Brown or does he only do the good news bits?)I'll bet Mervyn King was biting his lip when McFall was having a go. Is there no-one out there who is going to press the politicians on their responsibility for recession? We spend our lives listening to them referring to 'world wide' crisis while in fact that was the trigger and the Uk was an accident waiting to happen.After all even The Observer in the Sunday before last's editorial put the blame on Gordon Brown. Why is he getting away with murder?
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Just caught you (accidentally) on the 1.00 p.m. news. Brilliantly optimistic newsreader - she actually expected you to give a brief answer to her question. Everyone knows that you don't do 'brief', you only do 'extremely protracted and boring'. Get a grip, Peston, there are no Oscars to be won here. And I mean that most sincerely!!!!
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@stanblogger
"I am surprised that the deal that the government did with the banks, does not prevent them from behaving in this way."
Surprised?
Brown's gang did as they were told and came up with the money that will be used to make good their losses and pay the bonuses.
There is no possibility that the banks will pass on any interest rate reduction; not with share prices and reserves down.
Not that the banks were solely to blame; the Treasury, FSA and BoE are also in the scam masterminded by our criminal government. Rogues all.
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#15 Impairment charges is the American way of making things sound more dramatic that they actually are.
Long, long ago, in a City far, far away, we used to call that "provisions for bad debts" and left it at that !! However, the Americans didn't think it was suitably dramatic. Just as they didn't think a "fan" was sufficiently dramatic, so they called it an"Air Movement Device" (I kid you not) !!
As for Hester, he is a political appointee. What would you expect him to say ?? However, I would be interested to learn how he thinks RBS can continue to lend at the 2007 level and still repay its "government bailout" by 2010 !!
To quote a famous Lt. Commander Spock, "It does not compute, Captain !!"
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Lets face it, any Bank who says they are making a profit after having been bailed out by The Govt have got their Basic accounting wrong as Shareholders will ask where the money is.
He had no alternative but to post a loss and others will follow suit
The question Robert should have asked was what provisions RBS are carrying and why hadn't they released them to the Profit and Loss account if they have already made additional provisons in 2008 direct.
Banks will still be sitting on Rainy Day reserves, if it is not raining now then how bad does it have to get? Banks are playing poker with their shareholders and Government and we will eventually see a return to large provisioning. If RBS are confident that lending is higher than 2007, then they must be profitable. The problem is no one still knows what their balance sheet assets are worth, least of all the Banks themselves, so they will carry on provisioning.
If the Govt are serious about running Banks they should put in better liquidity controls and try and get back to good old cash accounting, it will take Banks years to unravel the mess they are in as they wont be able to disclose in one 'foul' swoop the extent of their previous (and continuing) mismanagement.
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A commenter has pointed out that some cash has been earmarked for "staff costs" (i.e. bonuses) by RBS.
As an employee, I'm thrilled about this possibility.
I'm not an executive, or an 'investment banker'. I don't work on a trading floor.
I'm just here trying to provide the best service I can to customers.
And there's a whole load of us who have worked our backsides off the past few month's trying to do what we can to get our employer through this mess.
To have done all that work, and to be rewarded with nothing, would result in a large number of people considering whether or not they are working in the right place.
There's no reason why "little guys" like me should be punished for the decisions and mistakes made by high-level executives.
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#53 scarrface
Out of interest....what odds did you get on Newcastle going down?
I bet a tenner that Portsmouth will go down with odds of 33 to 1 last week!
Tony Adams was an absolutely hopeless manager at Wycombe Wanderers a few years back.
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Robert, I have a question not related to HBOs or banking but about the impact of lower interest rates.
Actually I have two questions:
First if interest rates being too low for too long got us into this mess, then why are we applying the same technique to get us out again. Won't this approach just make things worse? Encouraging people to borrow and spend on stuff they can't really afford, keeping asset prices too high, Don't we just have to take the medicine of a recession and suffer till asset prices readjust to some more realistic level and we can go forward again?
Second, do the Bank of England factor in the response to falling interest rates from all sectors of the population? IT makes sense for the banks who by and large don't pass on the cuts but just use them to rebuild their balance sheets. It makes sense for businesses and people with mortgages. But people aged 45 and over make up over a quarter of the population. We tend to be in the saving phase of our lives, preparing for retirement. Higher interest rates give me confidence to spend. Since hearing interest rates will suffer such a massive cut I have pared my spending to the absolute bone and will have to keep it there. If 23 million other people are doing the same, surely that can't be good.
Please explain. I count on your blogs and reports.
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#51 Not only is the government *NOT* preventing them for do so but they are *INSISTING* that the banks squeeze everyone in order to pay them back first !!
As in many things, this government says one thing and does something else instead !!
Only two main banks have slipped this net - Barclays and HSBC !!
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If banks are struggling for profits, maybe it would be a good idea for them to raise their margins. Particularly if they have very expensive state subsidy on thier books.
How might they do that?
Maybe not pass on an interest rate cut?
I see mandleson is telling the banks that they public might be unhappy with them if they don't pass any cuts on.
But Mandleson has shown what he thinks of public opinion - total contempt.
He is hardly one to say that others should take any notice of the public -- and as the banks have to fight for customers, while mandleson has never even fought an election, even more reason to think his talk is just hot air.
Robert, maybe you could pin mandleson down on this - he doesn't care what the public think of him, why does he think the banks should care what the public think of them?
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So with heavy losses expected in the Building trade, ie the big housebuilding PLCs when will the Gov't begin nationalizing them?
Or has Mr Brown gone swimming in Egypt ie is he in de nile ?
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Sadly for Depositors interest rates will have to go lower, and the first people to feel the cuts will be savers, with Mortgage holders benefiting later.
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64: actually the huge losses the Pension Funds have taken will have far greater impact on Peoples future spending.
Add in lower returns from Life Insurance/ assurance plans, and of course loss of Dividends to small shareholders, and you have a big loss of spending power in the economy.
Add in Job losses in Banking and Building trades, and the fall in consumer spending is greater still.
All in all the economy is in cardiac arrest !
Shortly to have the blanket pulled up and over.......
All we need is a bugler to play the last post and we're set.
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#32
My main point is that they haven't lost any real money, it is simply a balance sheet movement. Consider if your house is worth £100k and it goes down in value to £80k then you haven't lost £20k. If you were to prepare financial statements for yourself the credit would be an unrealised losses credit of £20k. True, if you were to sell then you would lose £20k but if you do not then nothing bad has happened. Indeed, if the house goes up next year to £100k then you will have an unrealised profit of £20k. The problem is the income statement included realised and unrealised profits and the uninformed just listen to one figure as reported.
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This is wandering slightly off the actual subject here but in context...I hope.
The prompt is Post 49 from glanafon about the inhibitors to recovery that exist structurally, such as the difficulty in identifying sectors that might drive any recovery....should that ever look like coming about
There are two related points: The first being that as well as other effects of this somehat self-inflicted catastrophe----- one not widely mentioned is the massive outsourcing (or effective outsourcing) of work from the old ..."2,000 jobs are under threat at....." type of workplace to companies in the 2 to 50 employee range...now being squeezed between rising costs and large companies extending (unilaterally) their own payment terms further and further into the future.
This means the catastrophe while still measurable in the type of headlines long beloved or ...er...headline writers is actually going to be much more substantial in the kind of headlines NOT beloved of headline writers...such a "John and Mary lay off Ryan AND have to cancel their holidays as well"...repeated thousands of times.
AND... re sub-prime...in the emerging "new paridigm" how are graduates ever to pay their own sub-prime loans off.....??
These are the ones accumulated while they paid for the privelege of not entering themselves in the unemploymont lists and therby requiring state support----unlike the sometimes reviled 70s when young people were paid grants to continue in education and as a consequence emerged debt-free
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71 Soon one will need a degree to be a postman, or indeed, to drive a milkfloat.......
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I think it is called Paper Messaging Technology available at most Uni's.
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#70
If you bought a property for GBP 80K, it goes up to GBP 100K, then falls to GBP 80K you haven't lost a thing whether you sell or not? You never had the additional GBP 20K, so you'd break even.
If it goes up to GBP 100K next year and you don't sell, that isn't "unrealised profit" as it would be negated by the general rise in other properties, wouldn't it?
I'm concerned that people are still considering their homes as assets, with an eye on the value, rather than just places to live.
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I have to say that whilst I agree totally with the sentiment that the banks should have been far more responsible (and less greedy) when lending money in the past, the public need to take a bit of responsibility for this crisis as well.
Borrowing at an unaffordable level is just as stupid as lending it. The banks have a duty of care for sure, but in this age where people constantly complain about the "nanny state" - myself included - we could all do with having a good look at ourselves.
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The FSA have just announced a consultation paper into retail banking conduct of business http:// www.fsa.gov.uk/ pages/ Library/ Policy/ CP/ 2008/ 08_19.shtml
Shock horror!
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Could you please pass this onto Mr Stephen Hester.........I own and manage my own company, at this time of year we have significant cash deposits as our trading is cyclical. I have waited until yesterday for a phone call from RBS to reassure me that things are now fine (approx one month after the government bail out), the phone call I got was only forthcoming as I had received an email requesting a meeting in December!! This is in my opiniuon disgraceful, if we treated our customers like this we would not have any, as a result we are moving with + £2 million to HSBC, I thought that this might even trigger a responce from someone more senior than our account manager but apparently you do not need my money or business....good luck in turning RBS around.
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Come on Robert, its all doom and gloom with you, yes recession may be kicking in but at least we've got the a new hero........ SUPERBANKS!!
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So let me get this right - no one saw this coming at any level in RBS / NWB? And they expect us to congratulate them o gettting good before exceptions performance? Is this not the same excuse used by the dot com boys - "we are really good at the EBITDA level". But as Robert says, this is supposed to be a staid business.
Why no class action against the incompetent board (that's what they are) for negligence?
I just don't get hnow such a simple business can be so run in to the ground - were all 130,000 employees asleep at the wheel?
Hester should tell it as is it - he is in to rescue RBS - and not be so cagey about his words - this is a disgrace!
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Not much chance of any future interest rate cuts being passed on to consumers then.
Maximising bank profits will be the name of the game from now on.
We'll just have to get used to the idea that borrowing money is and will be more expensive for some time to come.
After all it is just another commodity which is priced on a supply and demand basis.
Cash is scarce and riskier to lend to it costs more.
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#62,
And nor should you get a bonus at my expense! (aka the taxpayer!). Your employer has shown themselves to be greedy and inept, you should take the full consequences of their ineptitude as any other company should!.
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This comment was removed because the moderators found it broke the House Rules.
On reflection, what RBS exhibits is pure hubris. Goodwin had too much sway over everything and eventually started to believe in his own publicity. He should ahve been restrained by his board, so they must share some culpability here.
The ABN Amro deal was one deal too far - and based on the apparent success of getting NWB - an absolute steal at the time.
Bonuses? Well, they consist of two parts - how an individual does and how his unit does. The first may see a bonus but not much, the second - frankly I don't care abut how paid, but not till the share price is back to say GBP5 - that will set a target that should sort the lions from the lambs. Can it be done? Yes! Until then - nought!!!
My view still remains - you got to be pretty bad to make a loss in banking!
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The £5trillion price tag is simply the price governments now have to pay for having been seduced by the dream that they had conquered boom and bust.
Our response to the lower rates of inflation (and interest) generated in the last 10 years or so by the productivity of the BRIC nations could either have been to settle for a lower growth rate (but 'real' growth - not artificially generated by inflating house prices and debt) or to live in a dream world that debt-financed consumption was without cost. We chose the latter.
It is possible that, either way, the cost of the final outcome (in the form of 'lost' growth or bank bail outs) would have been roughly the same - but coming back from the mountain that Gordon Brown led us up since 1997 just feels a lot worse.
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Robert, the major first is that a bank executive is prepard to say it 's all about leverage and not cite the Brown and Darling line of global.
It became a global issue because banks everywhere thought the gravy train was going to last forever and didn't.
What is apparent is that they all behaved like sheep and lost the basic principles of good banking years ago.
RBS has at least declared a loss wich required no degree to work out, but what of the others. The market has already priced in reduced dividends so why don't they all come clean with what is resting "off balance sheet".
And most importantly save for the pathetic posturing in front of the Commons Committee why is the FSA still acting not publically making clear what the new regulations are going to be to bring trust back into the system. Or is it their intention to continue as though nothing has changed
There actions throughout have been shameful and shown a level of total mismanagement, incompetance and downright stupidity.
Isn't it about time the House of Commons brought them individually to account as the banking problem was totally their creation.
We can't to afford as a country for another day to have people with no experience in the industry they are regulating ( or not as is clearly the case with the FSA) running the show.
They have shown they haven't a clue all too often and are now a clear national disgrace.
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Why not try a bit of lender liability for all retail banks - all houses get roughly revalued and debt is assessed at 90% of the value and banks take hit for the balkance and declare their loss to govt. That's it - everyone feels better with some equity (I know it's not real, but the consumer needs some boost).
Result, a feel good factor, everyone feels banks who over did it get hit and those banks that did not get off free.
AS for govt coffers - if oil at $60, why petrol GBP1 per litre - just got back from USA where prices went from $3 to $2.3 in 10 days - why not here?
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#81
I'm surprised at your response to #62 - we are ALL taxpayers - even those "lowly" employees that had to take the brunt of their incompetent bosses actions!
Try looking at the bigger picture - everyone who pays tax is affected - irrespective of their part (or not) in all of this!
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In response to redjsteel (#51):
I would restrict compensation to depositors because, without deposits, there is no banking system. Some level of depositor confidence and security is required for banking in any form, without which it is extremely difficult to run a modern economy. Hence my focus on depositors. Other creditors would be lower on the list. Shareholders bottom of the list (caveat emptor).
In response to ExcellenceFirst (#55):
I take your point about having access to shareholder capital at zero cost. However, I believe my argument still stands. Banks have no divine right to make a profit. Like any business, if they keep making dumb decisions, they will end up with a loss sooner or later. There's no great shame in it - just put your house in order and work to get back into profit. That's what they gleefully tell everyone else, as they continue to collect higher interest to compensate for lending to such an iffy business.
It's their shocked arrogance that the world would have the temerity to hand them a loss, when they're such masters of the universe. Profit and loss. That's business.
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Historic loss eh? A cynical person might note that it's convenient for the new boss of any failing organisation to get every scrap of bad news out of the way immediately, and take a very conservative view on bad debt write-offs etc. Disastrous figures, all the fault of the previous incumbent, nice low base from which to start the "rescue" and measure the success of the successor, clear out all the bad stuff this year while there are no bonuses to be had anyway ,and leave the decks clear for a storming, big-bonus-earning performance next year and the year after.....
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Would that be loss aaas in losaaalaaamos and why has my post been moderated for pointing out the RBS cymbol looks like 4 circumcised arrows arround a hole .
They must have known they would get screwed with a symbol like that
And why did they bother with the B when no to B is better
Must my post 82 be expurgated lest it be understood UNAMBIGUAAASLY
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#86 This is because the price of petrol in the UK has very little to do with the price of oil internationally. It has more to do with what the government want to gouge out of you and also what the petrol companies what to gouge out of you after the government have done with their gouging !!
The price of petrol went to 1.2 quid when the oil price went pass the $115/barrel mark. It is now almost halved but the price of petrol is not half of what it was !!
QED
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Trevor Chan produced an interesting game years back called Capitalism II.
One way to take complete control of a company within the game was to mismanage it, buy the Shares up cheap, then put right the management issues and take the profits!
Why do I get the feeling something very like that has been is being played out for real, right now ?
Just on a very grand scale!
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#63 - I got 20 to 1 pre-season. My mate owns a chain of bookies and is an avid Newcastle fan - I do this every year to wind him up. Funnily enough, he's not reporting any credit crunch related problems. In fact business is on the up and up as the poor and stupid gamble with money they haven't got. They are in good company with investment bankers it seems!
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Peston's interview with Hester this morning on the Today programme was frankly dreadful; a disgrace. Just listen to it again now. Hester is clearly a very smooth and slippery operator and he was allowed to get away with answering nothing. He said exactly what he wanted to say and Peston simply went on to his next prepared question without picking him up on anything. The question about bonuses was just ignored, swept aside with contempt. We came away from this conversation no wiser than when it started. Whatever one's feelings about Robert Peston and his knowledge, he self-evidently is no interviewer and the sooner these things are left to John Humphrys the better.
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87,
I’m sorry if I sound heartless but the reality is that the bank is bust, why should anyone working for that bank get a bonus paid for from tax payers money? It doesn’t matter how hard you work, if your company is doing badly don’t expect a bonus. I mean its called a bonus because you get a bonus when things are going well, bonuses are subject to the employee’s and the company’s performance. Surely your not suggesting that every hard worker obtain a bonus even when the company can’t afford it are you?
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For all his posturing on the world stage taking the credit for solving the credit crisis and blaming everyone else for creating it,....i believe Gordon Brown will be back to square one when he loses the Glenrothes bye-election......Alistair Darling for PM anyone? or perhaps a snap General election!!!
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#95
No...........I'm not advocating that at all. I have worked in the financial industry for 30 years and my experience in this kind of situation (although not of this magnitude) is that employees at the lower end of the spectrum often work long unpaid hours to "fire fight" a situation caused by the lack of business acumen of their senior managers and directors who have little or no understanding of their customer base OR (more to the point) of exactly how the markets work.
Many of the staff who work for the retail arm of these banks are not hugely paid (in fact most teachers are paid more) and conversely in the good times did not reap the "mega bonuses" that joe public seems to think they did.............those were only allocated to the select few on the trading floors or in the board room.
All I am saying is that we need to be fair... If it wasn't for the effort of many of these bank employees working on the "shop floor" so to speak, the loss may have well been a lot greater............
A sense of perspective needs to prevail.....
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I am frankly appalled that in the event of an interest rate cut by the BOE - something over which the clearers have no control - and the clearers not passing on this cut to their borrowers, as they are being pressed (sic) to do by the government, in order to shore up their balance sheets, nothing will be done to punish their arrogance.
Here is my solution. If base rate is cut 0.5 % & the clearer does not pass this on, then the extra interest earned by this failure will be taxed at 90%. Lets leave them something. I'm sure the government could muscle this measure through parliament pretty damn sharpish. It might also be popular out here where the real people have to try to get by.
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#95
BTW - I forgot to respond to your comment:
"I mean its called a bonus because you get a bonus when things are going well, bonuses are subject to the employee?s and the company?s performance."
As has been seen recently that isn't always true - Ralph Fuld @ Lehmans was begging the US Treasury for a bail out whilst still promising bonuses to Lehmans staff and Barclays recently raised capital in the Arab states to ensure their employees got a bonus..............
Bonuses in the financial sector haven't been apportioned for the right reasons for several years now......!
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Repossessions should be rented, not sold.
Selling at auction causes a huge instant loss for the bank.
If the property is let, even to the person who currently lives there, the losses per-annum are relatively tiny.
If the government were to take over all these failed mortgages and re-let them, much of the repossessions disaster can be avoided.
The return of state-housing in a big way.
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Re Bonuses - In reality, outside the boards and the investment banks, "bonuses" are in fact non-pensionable salary paid according to individual contribution. They were intoduced over the last decade at the expense of basic salary, not as a gift. To not pay "bonuses" to these staff who have generated profit (or in the case of RBS, reduced losses), would not be right.
The banks would lose their best staff - believe it or not, the headhunters remain active for the best people.
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@77 andyb1959
What makes you think banks want your money? Thanks to FRB and other trickery, they can print as much as they want; they prefer customers who borrow it, much more profitable.
I have been running a business (self-financing) for almost forty years, and have had accounts with most of the clearers and several merchant and overseas banks. At no time have I ever been given the impression that my custom was valued, other than at my local Midland (Martins for my wife) branch before it became HSBC.
It will come as no surprise to you that I still have accounts with HSBC, and am glad to be shot of Barclays and RBS among others.
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Like andyb1959 #77 I also had occasion to close a solvent business account with RBS. I sent a letter detailing my intention and reasons - no reply. I then sent a letter with my new bank details, again no reply, and my account was moved.
I put it down to the fact that RBS had lost sight of what it actually was, i.e. a high street bank. I don't think they really want small business accounts, which are always in credit and generating no overdraft/penalty charges.
I moved to HBOS and the same cycle repeated itself, with no communication from the bank, resulting in me moving accounts again 20 months ago.
These were the first UK banks needing to raise funds with rights issues. Coincidence?
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As the Business Editor for the BBC, Robert,
would you please produce an article explaining the current crisis/ looming disaster concerned with the "Dry Baltic Index".
As an Island race we are completley reliant upon shipping for imports and exports.
Nothing is shipping because of lack of credit/ bank guarantees.
If we don't import, we will have a war-time situation again.
Don't you think that this is a problem worth writing about to get politicians moving to guarantee (with taxpayers money) that shippers will be paid for their cargoes?
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Hey guys
Dont kill the messenger - Mr Preston is doing a very good job analysing and explaining to us non-economists what's going on.
I thought Hester hung himself this morning by avoiding the questions.
I received my company defined contribution pension statement this morning from Apr 07 to Apr 08 and guess what?... capital loss... and that was only to April 08. What will the April 09 statement look like??? Especially when all the hedging losses are exposed and a major Swiss Bank fails (watch what happens next).
So Mr Hester, when you say we should save a little more (I pay AVC's), why??? to pay you a bonus. I could have managed my funds far better than you idiots!!!
I think a few of these so called "bankers" should be in the dock at the end of this fiasco!
Remember this: Only governments cause inflation by increasing money supply (by what ever means they allow) and therefore devalue its nations currency, thus causing inflation.
Be prepared to loose your shirt. We ain't seen nothing yet!
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This is one despicable bank and I just hope that I manage to get my money out in time.
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"Banks like RBS aren't supposed to make losses, ever.
So where did it all go wrong?"
It all went wrong when people started to believe that dangerous nonsense. It's hubris, Peston.
"Past performance is no guarantee of future results" - how many times have you seen that written in an investment guide? Yet all the people tasked with oversight, regulation and enforcement swallowed the myth and fell asleep on the job. The facts never changed, increase leverage high enough and even tiny random fluctuations in the market have the capacity to completely wipe out your capital.
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#102 & #103 Strangely, I had a similar experience. About 40 years ago, I had an account with the then Nat West because my father had banked with National Provincial when dinosaurs roamed Britain !!
After repeated bad experiences with them in my student days despite a constant stream of income from family funds, I moved my account to Barclays and still bank with them to this day.
When I started working, off and on, in the Far East, I banked with HSBC ( a major Far Eastern bank) and opened an HSBC account here for the ease of transferring funds back (wife, kids and mortgage to feed) !! I still bank with both, using either of them that is most convenient. They have both given me satisfactory services.
I have never banked with Lloyds but I have heard good things about them.
Having said that, I believe that RBS' loss arose from the Egon Ronay School of Accounting !! I have my doubts that they made an actual loss. As a previous poster said, Hester may just be clearing the decks prior to the "bailout" so that he has a much lower base to start from when measuring the "recovery" of the bank.
In my time as a lowly bean-counter, I was repeatedly told that, given the same set of figures, 6 different bean-counters can come up with at least 9 different sets of accounts and *every* one of them can be judged to be a "true and fair view" of the company !!
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As an employee of RBS's Insurance division I attended a mangement conference in Mach when the laughable Chief Executive Chris Sullivan smugly took the stage and said (quote): "RBS has made a $20million dollar profit, it would take a team a year to work out how to spend that!"......wrong again!!!!..... always thought the guy was an idiot!
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Is it just me or has no one picked up on something that just does not add up?
At the point when the government decided to inject many billions of tax payers money into RBS, HBOS, Lloyds; the actual value of RBS alone based on it's share price was only some £11 billion.
So for injecting far more than £11 billion into RBS. the givernment got only 40%. What a raw deal for tax-payers.
And to add salt to the wound, The Prime-Minister is praised for his action!
Surely it would have been more prudent to buy the bank in it's entirity, break it down into it's smaller parts and within a year, sell the shares on the open market to recover the costs.
For example. RBS owns, Natwest, Direct-line, and many other house-hold names, not to mention, a portion of foreign banks in USA, India and China to name but a few. These should be sold off as separate entities.
Why has this point not been widely publicised on the news?
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"It's supposed to be solid and dull, concentrating on providing very basic banking services to millions of individuals and businesses."
Exactly. About 40 years ago, I used to nag my RBS Bank Manager father about the staid and boring banks and how they should get up to date in style. He said very much exactly what Robert Peston says. He died two years ago, but was sceptical about the banks' "progress". He's probably turning in his grave as I write!
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I am just sick and tired of Robert Peston going on about the tax payers money saving RBS.
Lets remember that when RBS paid its taxes on last years profits it was enough to fund the salaries for the NHS for a year.
We are all disappointed about what has happened no more so than myself who remains an employee of 30 years service and a shareholder.
So come on Robert, its about time you changed your record and make tell us something new and exciting for a change
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I think a distinction needs to be made between lending and buying loans. Loosely speaking, buying a loan up is effectively lending. In the same way I lend to the government if I buy some gilts. But the business rationale is different, one is trading and the other is traditional lending.
It would be interesting to find out the offending positions and their timing. Whether the losses were on actual loans originated by the bank, or proprietary trading.
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You say "It wouldn't surprise him (Hester) if analysts forecast a loss.."
Hardly surprising. Analyst forecasts of a loss appeared in at least one newspaper at the weekend (Scotland on Sunday)...
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It seems rather sad that the Financial Services are now being overseen by a former cabinet minister who resigned twice,who furthermore did not tell the truth when he applied for a mortgage himself.
There will no doubt be many members of the public who will end up with criminal records for lying on mortgage application forms.As ever its one rule for the powers that be:then other rules for the rest of us.
I will be disappointed if the moderators remove this comment.After all i am only telling the truth,naturally the BBC can pass on my details if the person concerned wants to take legal action against me.
Alexander Curzon
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I have just had a email from my RBS manager in Bournemouth. Six months ago he was happy to lend to me on a 70% bank 30% me basis. He encouraged me to knock down the houses that we had purchased together to start the development. When it came to drawing the build part of the loan he told me that RBS had changed their position and were now only prepared to offer me 170K instead of the 550K they had promised in writting to me. I now have a level bit of ground and no funding, thanks RBS! Where has our 20 billion gone?
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To m ake a profit is to sell at a margin
To break even is to sell and make at cost
To make a loss is to sell and make less than what you sold
To be a Bank now you lose on all fronts
To be a business you lose on all fronts
To be an individual you lose on all fronts
When the market capitulates everyone loses
Market bounces are akin to someone on a bouncy castle, the pump is filling the plastic, but the leak will sty per any trajectory upwards
Land
Commodities
Equities
Are depreciating
Food
Oil
Utilities
Are accelerating
The outcome is
The Banks lose more
The Business lose more
The individual loses most
And to summarise, this Bank has made a loss for the first time in its history
This is with new (crooked) accountancy rules that have been hastily put in place to hide the facts
You can Bank that we're all sank
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1O5
The credit function of the money can also cause inflation even if the government does not borrow a penny and has no debt and in fact this the main source of inflation since the 198Os.
It is simply because you measure the value of today's money with future profit (and value) and if there is a shortage of investment opportunities, the creation of securities for future profits multiply, very much in the manner of "The Producers". This causes a shift in the rate of return in different industries in which oligopolies attempt to restore the inter-sector ratios through price increases (or lower relative price reductions).
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Financial journalists act surprised that RBS is in such a mess but to any customer of NatWest that will be no surprise. The "brilliant" takeover of NatWest, that saw thousands of NatWest staff fired, was done purely for the advantage of RBS and the greed and ego of Fred Goodwin - mercifully the same greed that tripped him up when he bought ABN Amro. Ever been in Scotland and tried to use an RBS branch for NatWest business? Not allowed. Mention anywhere that you're having problems with NatWest and without fail someone will pipe up about how they are too. If RBS can't even run a customer bank properly, how ON EARTH were they ever trusted with these complex financial mechanisms?
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Robert, as someone who has set your agenda with my posts recently, albeit you keeping the desperate Baltic Exchange rates and seizure or shipping, may I suggest:
Why are Banks hiking interest rates again at a time when the BoE is odds on to cut rates by 0.75% (0.5% assumed)?
Apart from the consumer sale of saving rates at nearly double the interest rate to encourage savers and no doubt inrease balance sheets, WHAT IS GOING ON?
However, I ask this as someone that would encourage rates to increase rapidly without having the Brown stuff the banks with our money first.
Please investigate as the tea and cakes around the Adam fireplace is obviously not having the Darling affect
Are the Banks sticking a finger up at our Darling because they know we are in the Braown stuff?
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#2 #20 #32
Since this is a loss to correct "too large a credit in the past" can RBS also correct the "too large bonuses" handed out in the past based on these erroneous bits of book keeping?
In other words, would the ex-directors please let the shareholders, which now include us, have their money back?
Yours Aye,
Philip
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“although we've become inured over the past few months to the world's biggest banks announcing losses, it's still momentous that RBS is heading for the first full-year loss in its history”
Robert, you should know that a new broom must sweep clean. Look out in the detail for the distinction between general and specific provisions.
He must allow for a margin of future write-backs to boost profits on his watch! LOL
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Funny that. The SNP are bellyaching about possible job losses in Scotland due to HBOS, but I haven't heard any complaints about possible job losses in Scotland due ro RBS.
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110 - The answer to your problem and more can be found on www.howitends.co.uk - a fascinating and easily understandable collection of commentaries as to what has happened in recent decades, what is happening now, why, and where it will lead whether we want it to or not.
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110 - The answer to your problem and more can be found on howitends.co.uk - a fascinating and easily understandable collection of commentaries as to what has happened in recent decades, what is happening now, why, and where it will lead whether we want it to or not.
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Will you only be happy when armageddon is achieved? When we get to this point what will you talk about?
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As a nation.....can't we just stick what little money we have left all on KATCHIT running in the 2:50 at Wincanton this Saturday (on the nose).....it's got to be worth a punt given the situation we find ourselves in!
The bookie may need to lay the bet somewhat (.....what's a CDS by the way?)
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#109
Remarkably, it seems to have taken them less time to lose £20bn. How clever is that?
The trouble is, the idiots in your organisation, don't seem to think they have done anything wrong, and therefore see no reason to express remorse.
How the head idiot still seems to have local hero status in Scotland is beyond me.
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You just couldn't make it up....
"Lloyds TSB has confirmed reports that HBOS' chief executive Andy Hornby has been employed as a consultant at Lloyds TSB on ?60,000 a month." 4 Nov 2008.
http://www.mortgagestrategy.co.uk
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There was a story on the radio Tuesday morning (could have been Classic FM or Radio 4) which said that a think tank of economists had criticised Gordon Brown's policy of setting a target for inflation of 2.5% as being fundamentally flawed and of being a contributory factor to the current problems in the UK. I cannot seem to find it anywhere on the BBC. But I'm forgetting. The BBC is leading the Brown recovery, and, it must be said, making a good job of it ! It doesn't run bad news for Brown at the moment. I wonder why ?
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why is it news that RBS make a 'loss'? We all knew it 6 weeks ago! Arrogance again-and is this the truth, the whole truth and nothing but the truth? We are being given nuggets of info to appease our blood lust for the APPALLING way us normal, hardworking folk have been screaming for!
What, exactly are these new accounting rules?
Let's have some clear truth please!
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#123
The SNP are not bellyaching as you so crudely put it but are of course concerned at the potential loss of maybe 20,000 jobs some of which will undoubtedly be in Englandshire. There is similar concern about RBS jobs but less to go on until the "management" make any decisions on the size of savings they need to make.
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#129 ""Lloyds TSB has confirmed reports that HBOS' chief executive Andy Hornby has been employed as a consultant at Lloyds TSB on ?60,000 a month." 4 Nov 2008."
Actions of the political commissars at their best !!
Officially turf him out and then bring him back in by the back door for a whacking big "fee" so he wouldn't spill the beans about the various political skeletons in the cupboards !!
Does anyone have any more doubts that these banks will become political entities ??
I feel so sorry for the ordinary shareholders of Lloyds !! Every new minute makes me gladder that at least two main banks have escaped the clutches of these political vampires !!
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For those of you who think that bonuses paid to bankers are immoral, here's something even better -
Student bonuses 'waste of £100m' - BBC headline
Kiddies are now being paid/bribed to hand in their homework on time - never mind the quality !!
In my day, my dad took a big stick to me if my homework wasn't on time *AND* of good quality !!
Is it any wonder that even the BBC news articles are riddled with grammatical, spelling and punctuation errors ??
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FSA may regulate bank behaviour - BBC headline
This is about on par with the health warning printed on packets of peanuts that say "may contain nuts" !!
NuLabour set up the FSA, purportedly to regulate the banks, but gave it *NO* teeth !! It effect, it has become the NuLabour gentlemen's club with huge salaries and bonuses !!
Meanwhile, the barrow boys run riot with our money and all the FSA did was tut-tut at them !!
Therefore, all responsibility for this mess goes back to the one who set up this insane scheme - one Gormless Gordon, former Chancellor and current PM of the Union of Soviet Socialist Britain !!
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I have a question for Robert Peston
Over the last month if you looked on a daily basis at the 5 top winners and losers in stocks on a daily basis there seems to be a strange symmetry.
From one day to the next the columns reverse or at least a high percentage of the companies do. Is this down to brokers and the markets creating revenue opportunities buy over selling and profit taking?
It seems unlikely that the data changes on a daily basis.
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I am pleased that a number of respondents on here have questioned the accounting practices used by the Banks to extract cash from Us the Taxpayer, via the Government bailouts.
I have personally questioned all along whether this is a total scam.
For example, we are told that the credit crunch arises from sub-prime packaged loans, which are in default.
This doesn't pass examination
Let us say that a standard gilt or bond rate for a billion quid investment pays 5% (per cent)
So a sub-prime package is sold for a billion quid as paying say 6% (higher risk)
If we imagine that a very high number of 25 per cent of sub-primers default, the package now returns 4.5 percent ( 6 x .75)and the bank now owns the collateral of the defaulted property.
So where is the loss of capital of a Billion quid ?
There isn't one, it is only the interest payment that is reduced to less than the market rate.
And only by half a percent on these figures.
Which isn't too clever but it isn't a capital loss, so they don't need multi billion pound bail outs for capital losses which don't exist.
Therefore it looks to me as if Banks are claiming for capital losses which don't exist except as manufactured under 'funny accounting' practices.
And of course they may be grabbing Taxpayer money to cover up what may be other losses, but these want looking at as well.
So I think there is a monster scam going on with relation to 'save our Banks' and with 'save the world financial system'.
And we are all paying for it, and will pay for it for decades.
Or as Jerry McGuire might have said
'If it isn't a Scam -
Show me the Money -
Show me the Capital Losses'
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"Zardari in talks with Saudi king" - BBC headline
Yet another country trying to escape the dead hand of IMF. For too long, the IMF has imposed unreasonable conditions on the countries that have to accept their loans.
As I have said in several earlier posts, many countries are looking for alternative solutions and it looks like Pakistan may have found one. Perhaps Iceland may have found another.
Britain's begging bowl was certainly not filled to over-gushing with gold and jewels !!
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Dear Robert
All this profit and loss scenario over the last few weeks is now SO boring.
Lets pay attention to the real economy and the rip merchants who are causing so much pain in Britain.
The local Authorities and council tax, AND the Utility Companies, who are Vultures with no moral back bone, and are ripping the British people off doubling their costs and using demand as an excuse to hike up prices.and the absolutely useless Watchdogs who support these hikes.
The Blood suckers are the banks, and the Vultures feeding off the misery of millions the Utilities, all say these price kikes are necessary, but ARE DOUBLE THAT OF EUROPE, "why"?
Crooks and villians the lot of them, and the watchdogs are the Fagins of this country, pick pocketing support from the board rooms of the shareholders.
the Watchdogs are not there to support the Public but to keep the public away from the Utility suppliers and give them a free path to profiteer.
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strategycall
The banks loss isn't just 'expected interest payments' - the loses are also that the loan security (the properties) are worth nothing like the value of the loan. So having seized the property, even if it could be sold (and many can't) it would not cover the outstanding loan.
Property prices were a bubble -- they were in demand because loans were easily available -- this demand meant prices spiralled up, now there is no demand because there are no loans to be had, so prices fall and don't cover the loan value.
The banks were the men left holding the tulip bulb that had cost them a million quid, but was now worth nothing.
However the government has now brought the (worthless) million quid tulip bulb for the country with taxpayers money...
The taxpayer is a million quid out of pocket, the banks have their million quid back, but every trader who handled the tulip bulb as it spiralled in price from nothing to a million quid gets to keep their 'profit'.
(for million read x million or x trillion, for tulip bulb read security or property)
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During Oct I wrote 5 times to my Lincoln (Lab) MP. I wrote principally in regard to what help for business was going to be forthcoming. I have not had a single reply bar one that said on 29th Oct that my MP was going to write to the Treasury..
On this BBC website (so called 'Special Report') the same old guff being churned out:
"Darling pledges business support -
Alistair Darling says it is vital to support small businesses through the downturn as he announces £4bn in extra financial help"
WHEN is this money going to be accessible and in what form and under what conditions? Figure you'd have to say the future is bright and you're a cast-iron prospect. Not many small firms going to be able to say that, are there?
Got to go thru the banks? Why? What on earth has it got to do with banks? Why should one business have to go to another business to claim Government assistance. Do they not have the means at their disposal to disperse this money effectively on their own?
This is Taxpayers money no bank money. I know what MPs are suppose to do, I tried to be one. It is the job of MEMBERS OF PARLIAMENT to canvass opinion and take the list to the Treasury and they are behaving in a cowardly and SHAMEFUL WAY up and down the country, hiding from the responsibilty to the electorates they represent whatever their political persuasion.
From the .gov.uk website about MPs:
{As an MP you would represent your constituency's interests in parliament when new laws or issues are debated. You would also need to reflect your party's views and policies. Your work would involve:
- debating issues and raising questions in parliament
- holding surgeries and advice sessions in your constituency
- taking up constituents’ issues and concerns with relevant ministers }
What is YOUR MP doing for you at this time?
GC
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"92. At 4:16pm on 04 Nov 2008, supercalmdown wrote:
One way to take complete control of a company within the game was to mismanage it, buy the Shares up cheap, then put right the management issues and take the profits!
Why do I get the feeling something very like that has been is being played out for real, right now ?"
Look at it this way.
Banks control credit. We use credit as money these days (97% of our money is credit), so the banks control virtually all of the money which is available.
When banks stop lending... There is no money. When there is no money there is a recession.
So basically, banks control when there are recessions. They control when business booms and when it crashes.
Lol. And you thought voting mattered...
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Robert,
fascinating. But the issue today is not the banks; not ITVs failure; not Ryan Air; next; anything else. The issue that will assist in the answers to all the big questions is who will the President-Elect pick as the Treasury Secretary? Will it be restrictions on free trade or a guarentee of it. Will there be further IR cuts? Will there be tax cuts? It is this decision above all others that will deternmine the course of the next three years.
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#143 dricardo
*who will the President-Elect pick as the Treasury Secretary?*
....it will need to be someone who is expert at going down on bended knee.
....maybe he'll stick with Hank Paulson then! (except he'll need padded knee patches in his trousers from now on!)
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Thought for the Day
Interesting comment in Martin Wolf's article in today's FT, quoting Keynes from 1931:-
"a sound banker, alas, is not one who foresees danger and avoids it, but one who, when he’s ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him"
Has much changed in this respect over the last 77 years?
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REMEMBER!......THIS WILL BE A GOOD DAY FOR HMG TO BURY BAD NEWS!
......I wonder what announcements may be slipped out of the Treasury, BoE, FSA, the banks or Downing Street later today???
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142:
Steady !
I've never claimed that voting mattered!
The political class decide the agenda and then decide what their options are.
Rarely do ordinary folks or their votes actually impact on real policy, or law making processes.
But this is the same the world over and it doesn't matter too much what the powers that be call their form of gov't.
Cynicism , like back pain, grows with age.
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And all this bank stuff gives useful info to us ordinary folk how? In 6 weeks of reading and writing on these posts certain facts are apparent.
The banks are not going to get spanked
The politicians are not going to get pummelled
Truth and transparency are NEVER going to happen
We still have the freedom of speech, but who's listening? Our time honoured representatives (mp's and press) are falling incredibly short of speaking for us. In no interview or PM question time has there been a tenacious questioning of any main player from the banks or government.
I therefore have to assume that there is noone with the integrity to speak for the people.
We are not stupid, nor are we a nation of cowards. We are a nation led by greedy cowards. Can we resurrect Oliver Cromwell, cos as far as I am concerned, bringing your country to it's knees, amounts to treason.
Trouble is, I think we'd need to extend the Tower of London if we incarcerated all of the bad guys. And why did Guy Fawkes attack the Houses of Parliament?
We the people want the 'great' back in Britain. Will someone PLEASE tell me how to get these rotten eggs to stand accountable for destroying our economy, bankrupting our nation, and ruining the lives of the very people they are supposed to serve?
As ordinary people, no matter how much we shout, we will never be treated with the respect we deserve. We just have to put up and shut up. Nanny states says to it's children
"don't do as I do, do as I tell you"
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With regard to lending and HBoS. I started moving my account from NatWest to HBoS when the latter were offering 6% on current accounts with a balance over £2000.
I was then made redundant and run my balance down with HBoS.
At some point THIS year I was contacted by phone by a person from HBoS. Would I like a credit card? she asks.
No I said I already have a card with NatWest (I still ahd the account there). Oh you can move your balance over ... blah, blah.
No I said I don not have a balance on it.
But you might need the card in the future she said.
But I'm redundant and you wouldn't be interested in me. I also have no debts and am looking at setting up my own business.
Oh she says how much would you earn in your first year?
God knows I say not a lot.
Have a guess she says.
Shall I say £20,000.
Good she says I'll send the form.
It arrives I bin it.
A couple of weeks later a reminder for me to request my credit card arrives. I bin it too.
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Hester was directly responsible for the selling of put option convertibles to companies such as Hillsdown, Tesco etc. These were designed to shield the P&L accounts of hte companies from the true rate of interest that they were paying. They all had to be bought back at vast losses by the companies. CSFB took huge fees on these deals and no doubt paid Hester bonuses for selling what were, in effect, off-balance sheet toxic liabilities.
A perfect choice to run the bank? I think not.
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I have a much simpler point of view, and point to make. Having been with the same branch of RBS for almost 50 years now, and having stuck by them through many mistakes, small and big problems, (no need to mention details here), I am incensed at the decision to pay enormous bonuses at taxpayers' expense. I am not a shareholder, merely a simple, loyal (and therefore from their point of view) presumably stupid customer. If these bonuses (which I regard as immoral) are paid, I intend to withdraw all my lifetime savings as a mark of protest. Not as a panic measure. I could have done that weeks/months ago. Just to be uninvolved in these seedy transactions, carried out by greedy and incompetent individuals.
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