Royal Bank of Scotland Group Plc (RBS,RBS.L) said Monday it might report a loss of as much as GBP 28 billion for full-year 2008, hit severely by credit market write-downs and goodwill impairments. The bank expects attributable loss, after credit market write-downs, integration costs, preference dividends and other items, and before exceptional goodwill impairments, in the range of GBP 7 billion - GBP 8 billion.
Separately, ABN AMRO, which is currently owned by RFS Holdings B.V., a consortium of RBS, the Government of the Netherlands, and Banco Santander, said that it expects an after-tax profit of about EUR 3.5 billion for fiscal 2008.
RBS said that it is currently reviewing the carrying value of goodwill and other purchased intangibles, and preliminary findings indicate an impairment charge in the region of about GBP 15 billion - GBP 20 billion for the year.
RBS noted that it now estimates an underlying break-even financial performance after credit impairment losses for 2008, reflecting the profitability across its retail and commercial franchises offsetting losses in the Global Banking and Markets division, or GBM.
In an Interim Management Statement on November 4, 2008 covering the first nine months of the year, RBS had stated that it was not possible to forecast the group's results with precision for the fourth quarter of 2008 in the light of significant uncertainties in credit conditions and an acceleration of the economic slowdown. In the Statement, the bank had also said that GBM was expected to record a loss for the quarter.
RBS today said that GBM's fourth-quarter income is estimated to be about GBP 3 billion lower than its expectations at the time of the Interim Management Statement, partially offset by a reduction in variable costs. The company attributed the poor performance of GBM to exceptionally difficult credit trading conditions, ongoing market dislocation, subdued activity levels, reserves against widening market spreads, and further write-downs on a variety of trading assets.
For 2008, RBS estimates credit impairment losses between GBP 6.5 billion and GBP 7 billion. Write-downs for the full-year relating to the Group's previously disclosed credit market exposures are estimated in the region of GBP 8 billion after hedging gains of approximately GBP 1.7 billion.
Further, the bank said that it has reached agreement with HM Treasury and UK Financial Investments, or UKFI, to convert the Treasury's GBP 5 billion of preference share investment in RBS to new ordinary shares. Eligible RBS shareholders can apply to subscribe for approximately GBP 5 billion of new ordinary shares pro rata to their existing shareholdings at a fixed price of 31.75 pence per share. This price represents an 8.5% discount to RBS' closing share price on January 16. The ordinary shares offer is fully underwritten by HMT and the proceeds will be used to fully redeem the preference shares held by HMT.
Commenting on the trading, Stephen Hester, RBS Group Chief Executive, said "The dislocation of credit markets and the global economic downturn continue to hit RBS hard, as with many other banks. We are making progress in recognizing excess risk and dealing with it. Significant uncertainties and risks inevitably remain."
"In this context, the support we are receiving from Government benefits all our stakeholders and enables us to provide more customer support in return. With enhanced core capital, removal of the preference share dividend and the prospect of further asset and liquidity measures, RBS is able to continue its strategic restructuring purposefully," Hester added.
Further, RBS stated that it has made Board and Executive changes and more will occur. On Friday, the bank announced the appointment of Sir Philip Hampton as Chairman-designate.
Meanwhile, ABN said that the profit estimate includes a loss after tax in the region of EUR 13 billion from continuing operations, offset by a gain after tax of EUR 16.5 billion from discontinued operations, including the results from the sale and transfer of Banco Real, Banca Antonveneta and the Asset Management business.
ABN also said that its loss from continuing operations is primarily due to the GBM business acquired by RBS. Meanwhile, the businesses acquired by the Dutch government, principally the Dutch branch network and the Private Clients business, were profitable for the full year, ABN noted. The bank expects to announce its full-year 2008 results in March.
Going forward, RBS said that significant uncertainties remain both in the world economy and markets. While more asset deterioration and significant credit losses seem certain, their extent and timing cannot be predicted. The bank intends to engage closely with Government on its new asset and funding initiatives announced today.
RBS closed Friday's trading at $10.85, down $1.25, on a volume of 1.08 million shares.
RBS.L is trading at 20 pence on the LSE, down 14.70 pence, on a volume of 221.88 million shares.
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