Stephen Hester the new Chief Executive at the Royal Bank of Scotland reported further write downs of £206 million this week and expects more to come in the third quarter.
Borrowing heavily to acquire international businesses such as the Dutch giant ABN AMRO, The Royal Bank of Scotland, who also own a string of other businesses worldwide, has suffered more than most as the world moves through the Credit Crunch.
Coming on top of write-offs totaling £5.9 billion in the first half of 2008, the £206 million write down may provide some relief to investors many of which expected worse.
Stephen Hester speaking to the BBC on Tuesday said:
"The scale of the market disruption and the economic downturn that is happening as a consequence means that credit losses are rising very sharply and other losses associated with market disruption and that meant that in the first half of this year we made a loss after taking account of those other items and we are signalling a similar scale of write offs in the second half."
He refused to be drawn on whether the Royal Bank would make a loss at the year end, but acknowledged that Investment Analysts were likely to be forecasting full-year losses.
Hester, himself a former Investment banker commented: "In a market that is so uncertain as current we can't make a forecast for the end of the year." Adding that RBS over-borrowed to buy ABN AMRO at top of the bull run and needs to slash debt.
The Royal Bank of Scotland is striving to raise £20billion in total, £5billion by selling preference shares directly to the Government with the remaining £15billion being raised by an issue of ordinary shares offered to the public. The ordinary shares, which will be fully underwritten by the UK Government, are to be offered at a price of 65.5p which, according to Hester's presentation to investors on Tuesday, is just 63% of June Tangible Net Asset Values and the lowest level since 1990.
Trading at a fraction of the 2007 high of 700p Royal Bank of Scotland shares rallied against a falling market yesterday closing up at 69.30p capitalising the group at just £11.1bn, or a shade off one times last year’s operating profit. The shares, ahead of the decision on interest rates due at noon today, were trading at 67.5p this morning.
