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RBS: historic loss

Robert Peston | 09:40 UK time, Tuesday, 4 November 2008

Stephen Hester has today signalled that Royal Bank of Scotland will make a loss this year.

RBS logoIn 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.


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  • Comment number 1.

    > 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?

  • Comment number 2.

    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.

  • Comment number 3.

    Is my money safe...

  • Comment number 4.

    An interesting take here on RBS ...

  • Comment number 5.

    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 ?

  • Comment number 6.

    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.

  • Comment number 7.

    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?

  • Comment number 8.

    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.

  • Comment number 9.

    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!



    Over the next few years we will all now pay a very high price.

    Alexander Curzon.

  • Comment number 10.

    Excuse me Mr Preston but I believe the taxpayers should be the new owners.


  • Comment number 11.

    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!

  • Comment number 12.

    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!

  • Comment number 13.

    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.

  • Comment number 14.

    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.

  • Comment number 15.

    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.

  • Comment number 16.

    "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?

  • Comment number 17.

    "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.

  • Comment number 18.

    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.?

  • Comment number 19.

    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.

  • Comment number 20.

    #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.

  • Comment number 21.

    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.



    Alexander Curzon.

  • Comment number 22.

    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.

  • Comment number 23.

    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.

  • Comment number 24.

    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.

  • Comment number 25.

    Looks like the bankers will still get their bonuses this year....

    ....perversely the taxpayers bank bailout money will ensure it!

  • Comment number 26.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 27.

    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.

    Good luck!

  • Comment number 28.

    RBS was one of the largest payers of corporation tax - how will Gordon Clown make up those missing millions?

  • Comment number 29.

    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?

  • Comment number 30.

    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?

  • Comment number 31.


    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.

  • Comment number 32.

    #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.

  • Comment number 33.

    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

  • Comment number 34.

    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.

  • Comment number 35.

    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?

  • Comment number 36.

    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.

  • Comment number 37.

    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?

  • Comment number 38.

    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

  • Comment number 39.

    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.

  • Comment number 40.

    # 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.

  • Comment number 41.

    "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?

  • Comment number 42.

  • Comment number 43.

    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.

  • Comment number 44.

    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".

  • Comment number 45.

    # 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.

  • Comment number 46.

    #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.

  • Comment number 47.


    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.

  • Comment number 48.

    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!!!! one was listening as long as the "perceived" profits kept coming.
    #43 entirely valid - the banks won't make as much; what a shame!

  • Comment number 49.

    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.

  • Comment number 50.


    "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).

  • Comment number 51.

    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.

  • Comment number 52.


    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.

  • Comment number 53.

    #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!

  • Comment number 54.

    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..

  • Comment number 55.

    #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.

  • Comment number 56.

    "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.


  • Comment number 57.

    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?

  • Comment number 58.

    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!!!!

  • Comment number 59.


    "I am surprised that the deal that the government did with the banks, does not prevent them from behaving in this way."


    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.

  • Comment number 60.

    #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 !!"

  • Comment number 61.

    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.

  • Comment number 62.

    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.

  • Comment number 63.

    #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.

  • Comment number 64.

    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.

  • Comment number 65.

    #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 !!

  • Comment number 66.

    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?

  • Comment number 67.

    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 ?

  • Comment number 68.

    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.

  • Comment number 69.

    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.

  • Comment number 70.


    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.

  • Comment number 71.

    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 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 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 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

  • Comment number 72.

    71 Soon one will need a degree to be a postman, or indeed, to drive a milkfloat.......

  • Comment number 73.

    I think it is called Paper Messaging Technology available at most Uni's.

  • Comment number 74.


    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.

  • Comment number 75.

    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.

  • Comment number 76.

    The FSA have just announced a consultation paper into retail banking conduct of business https:// pages/ Library/ Policy/ CP/ 2008/ 08_19.shtml

    Shock horror!

  • Comment number 77.

    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.

  • Comment number 78.

    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!!

  • Comment number 79.

    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!

  • Comment number 80.

    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.

  • Comment number 81.


    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!.

  • Comment number 82.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 83.

    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!

  • Comment number 84.

    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.

  • Comment number 85.

    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.

  • Comment number 86.

    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?

  • Comment number 87.


    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!

  • Comment number 88.

    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.

  • Comment number 89.

    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.....

  • Comment number 90.

    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

  • Comment number 91.

    #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 !!


  • Comment number 92.

    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!

  • Comment number 93.

    #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!

  • Comment number 94.

    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.

  • Comment number 95.


    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?

  • Comment number 96.

    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!!!

  • Comment number 97.


    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.....

  • Comment number 98.

    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.

  • Comment number 99.


    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......!

  • Comment number 100.

    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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