Royal Bank of Scotland has posted a pre-tax loss of £691 million during the first six months of 2008 - reportedly the largest loss by a high-street bank in UK history.
RBS, which is Britain’s second biggest bank, said the first half loss was mainly due to a £5.9 billion write-off of bad debts following the collapse of the sub-prime
mortgage market in the US last year.
It reported a £5.1 billion underlying profit but that was not enough to make up for the massive losses.
The bank, which owns NatWest, said it had been seriously affected by the impact of unprecedented market conditions on several of its businesses forcing the bank into the red for the first time in its history.
Sir Fred Goodwin, RBS group chief executive, commented: “The first half of 2008 has been as difficult an operating environment as we have encountered for some time, presenting both general and specific challenges to RBS.”
Calling it a “chastening experience”, he said: “We are determined to ensure that the inherent strengths of the group’s diverse business model are not obscured in this way again.”
Sir Goodwin added: “We drew heavily on our shareholders for financial support and we recognise that we must now deliver a level of performance that meets their expectations for the company and restores value to our shares. We are determined to do so, and this is our focus.”
RBS has 15 million British customers.
It has been a gloomy summer for UK banks with the majority reporting heavy losses. Alliance & Leicester announced that its profits were down 99%, while Barclays and HBOS reported that their profits were down 33% and 72% respectively.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.