RBS Chastens in 2012 to a Loss

PUBLISHED: Feb 28 2013 @ 06:28 | Comments (1) | More info about Kenneth G. Mondero

Chastening has found itself a new meaning after the Royal Bank of Scotland (LSE:RBS) ended 2012 at a loss, its fifth since the financial crisis of 2008, as its profit was swallowed by a number of huge charges in what its Chief Executive said the way to “put right past mistakes”.

In its report earlier today, RBS made a pre-tax loss of £5.165 billion, over four times more than the loss it incurred in 2011 largely due to the impact of own credit adjustments.

RBS’ own credit adjustments, the bank’s valuation of how much it would cost to buy its own debt back, amounted to a charge of £4.65 billion compared to the £1.91 billion gain in 2011, which the bank said is a reflection of its continued strengthening of credit profile.

Chastening Year

The bank actually improved its performance in 2012 as it nearly doubled its operating profit from £1.8 billion the year before to £3.4 billion despite a lower total income.

Exceptional items tolled heavily on the effectively publicly-owned bank as it took several hits that bruised not only its balance sheet but also its reputation, including funds set aside for redress of payment protection insurance (PPI), interest rate hedging products sold to SME’s, and a fine from UK and US regulators related to the rigging of the Libor, among others.

New RBS

All of these had to be done, according to Stephen Hester, as the bank shifts to become a “new RBS”, saying that 2012 was a “chastening year”.

In an interview, Hester acknowledged the bank, along with the rest of the financial sector, “made some mistakes” and that the loss in 2012 reflects the “cleaning up” that’s happening in the bank.

“We are determined to overcome the cultural and reputational baggage of pre-crisis times with the same focus we have applied to the financial clean-up from that era,” Hester said in a statement.

Today’s announcement and the statements that followed missed market appreciation as RBS shares fell by 3.5% to £3.35 at 11:00 GMT.

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