RBS reports widening losses
Royal Bank of Scotland (RBS) has reported widening losses in 2011 caused by Greek debt exposure and payment protection insurance mis-selling costs.
The bank, which is 83% taxpayer-owned, said its group pre-tax loss had risen to £766 million from £399 million the previous year.
It has made a loss every year since its £45.5 billion bailout in 2008. "RBS core profits were £6 billion, comparing well with others and representing a return on equity of 10.5%," says chief executive Stephen Hester.
"The reduction in our balance sheet since 2008 now exceeds £700 billion with all other 'safety' measures improving strongly. And we provided service to more than 30 million customers worldwide.
"We have three jobs at RBS – to support our customers, to defuse our legacy risks and to rebuild a successful profitable bank. In 2011 we showed results across all three goals, though with much still to do."
Profits and lending
Without the damage caused by the Greek debt of £1.099 billion and £850 million for PPI, the picture could have been more positive.
Group operating profit was £1.892 billion in the year to the end of December, up 11% on the prior year, while core RBS 2011 operating profit was £6.095 billion. The retail and commercial arm of the business saw operating profit rise 9%.
The group said it had made further progress on rebuilding its financial resilience during the year, strengthening the balance sheet and reducing risks. It is pushing ahead with the restructuring plan it began in 2009.
The balance sheet has been reduced by more than £700 billion from the peak of the crisis, it said.
There was encouraging news on lending to small and medium-sized enterprises (SME), too, with figures showing a 22% increase in new loans and facilities to UK corporates, exceeding its Project Merlin targets.
RBS new lending accounted for 48% of all SME lending reported by the Merlin banks, substantially above its customer market share.
Overall, more than 40p in every £1 the bank lent went to SMEs and business loans were granted at an average rate of 4,000 a week.
This article first appeared on our sister website Interactive Investor.
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.