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RBS Loss Worsens On Sovereign Debt Woes

2/23/2012 5:33 AM ET

Royal Bank of Scotland Group plc (RBS: Quote,RBS.L) Thursday reported a sharply wider 2011 loss, as the British lender's dismal fortunes were further impaired by large provisions for Greek government bonds. The charge, which exceeded a billion pounds, reflected the declining value of these bonds, which stood at 21 percent of par value as of December 31, 2011. Also adding to the bank's woes were hefty Payment Protection Insurance, or PPI, costs.

For the year, pretax loss was 766 million pounds, wider than 2010's 399 million pounds, with fourth-quarter pretax loss amounting to 1.98 billion pounds in 2011, compared to a loss of 8 million pounds a year ago. However, adjusting for the disposal of its payment processing division Global Merchant Services, 2011 group operating profit went up 11 percent to 1.89 billion pounds.

Looking back at the first three years of RBS's recovery plan, Chief Executive Stephen Hester noted that short-term wholesale funding was now 66 percent lower, while Core Tier 1 ratio went up to 10.6 percent.

Chairman Philip Hampton said that over 20 billion pounds of government-guaranteed debt had been repaid in 2011. The funded balance sheet was also trimmed by 49 billion pounds in 2011, including 44 billion pounds in non-core funded assets reduction, which exceeded targets.

Impairment losses were lower at 7.44 billion pounds compared to 9.26 billion pounds in the previous year. Operating expenses of 15.48 billion pounds also narrowed from 16.71 billion pounds. Even as it lamented the PPI costs of 850 million pounds, the Bank paid out 785 million pounds in variable compensation, or bonuses, of which 390 million pounds were spent in the Global Banking & Markets segment.

Of the core businesses, UK Retail posted a 45 percent improvement in operating profit thanks to impairments falling by 32 percent and expenses dropping by 6 percent. Global Banking & Markets, which registered a "weaker" second half, saw operating profit plunge 54 percent. Ulster Bank suffered a "difficult" credit environment due to which its operating loss swelled to 1.02 billion pounds.

Total net interest income fell to 12.69 billion pounds from 14.20 billion pounds last year, with net interest margin slipping to 1.92 percent from 2.01 percent. Retail & Commercial net interest margin improved to 3.21 percent from 3.14 percent, but was offset by non-performing assets in the Non-Core division, and also hurt by the higher liquidity portfolio.

Non-interest income also fell to 15.09 billion pounds from 18.46 billion pounds due to lower GBM and Non-Core trading income as well as a drop in insurance net premium income. Also, the prior-year results included 482 million pounds from Global Merchant Services.

Among the Bank's targets for 2012 are such further disposals as that of RBS Aviation Finance, inked in January 2012, for 4.7 billion pounds. RBS Insurance, which swung around to record an operating profit in 2011, may see an initial public offering in the second-half of 2012.

RBS.L is currently trading up by 4.65 percent, or 1.27 pence, at 28.60 pence per share on the London Stock Exchange.

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by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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