RBS, the loan arranger
It's a week that Stephen Hester will be happy to put behind him.
The chief executive of the Royal Bank of Scotland has announced 3,700 job losses from branches and the need for at least £25bn more in government capital injection, taking the taxpayers' share of economic value (though not voting power) up to 84%.
He was told by the European competition commissioner Neelie Kroes to sell large parts of RBS, which he points out this morning cost the UK taxpayer £9bn this week alone in the reduced stock market valuation of our stake.
And now there's a third quarter pre-tax loss of more than £2.1bn, or (as RBS prefers to emphasise) an operating loss of £1.5bn, sharply reduced from the second quarter. Impairments, or losses on loans, seem to be at a plateau, but it's a high one, at £3.3bn for the third quarter.
No huge surprises to any of this. But there's an interesting new message from the RBS chief executive, as he admits the bank is struggling to hit the government's demands for ensuring lending is available to homebuyers and businesses.
He's now pointing out that companies - his customers - are choosing to repair their balance sheets, and that means reducing the level of debt they're carrying. And he points out that's the way it should be.
The USA is out of recession, while companies are paying off debt faster than they're doing in Britain and savings are up. So pushing more credit into the economy may not be the way back to growth, and probably isn't good for us anyway.
There's a new figure from the bank that helps explain what's going on, suggesting the problem in reaching the lending targets is not the lack of willingness from banks, but the lack of demand from customers.
RBS has identified £27bn of credit available to its small, medium and "mid-corporate" customers through arranged overdrafts, which is available, easily accessed, but not being drawn down.
This looks like a big hint to Chancellor Alistair Darling, RBS's majority shareholder: time to re-think those lending targets.
Hullo, I'm Douglas Fraser, and I'm business and economy editor at ´óÏó´«Ã½ Scotland. Welcome to my blog, where you can read my take on money matters, viewed from a Scottish perspective.
Comment number 1.
At 6th Nov 2009, nine2ninetysix wrote:If businesses and individuals are borrowing less and saving more that is good news and common sense.
It always seemed stupid to me that the answer to too much debt sloshing around was to set targets for lending. A lending proposition either makes sense or it doesn`t, chasing targets is the reason banks overextended themselves, safe in the apparent knowledge that it would all work out ok in the end.
As we all know now, and some us knew for some time before that, it was always going to end in tears. Charles Dickens and Mr. Micawber could have taught Goodwin, Hornby and Applegarth a thing ot two about high finance.
Don`t get me wrong, I believe some debt is good as long as it is sensible for both sides of the loan arrangement.
Doubtless we will still hear people saying they can`t get a loan and complaining loud and long. Let us just bear in mind if they don`t get it chances are they don`t deserve it.
In the meantime every single one of us is paying the price for the greed and incompetance of a few. Sadly, given a few good years it will probably all happen again.
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Comment number 2.
At 6th Nov 2009, J C Brown wrote:The bankers are fooling the Government and public by saying that bonuses are essential motivators, may be, but as Hertzberg said, there is also negative KITA. It is unreal to consider bonuses in whatever form when RBS is making a loss. If the staff are not perfoming there could be a negative bonus of either salry reduction or the sack. No bonuses until the Government is repaid adn the bank is in profit.
As for staff redundancies may I suggest they look at their staff structure and elaborate overheads as I contend there are too many managerial levels who presurise the poor staff at the 'coal face'. I suspect that some mangagers blame the poor performance on thier staff not themselves.
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Comment number 3.
At 6th Nov 2009, bankernomore wrote:RBS losses being announced on the same day as BA losses puts things into persepctive a little. Based as a percentage of turnover alone, BA's losses are seven times greater than RBS's. Not good for either but it puts the size of RBS into perspective.
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Comment number 4.
At 6th Nov 2009, kaybraes wrote:It's just a pity the government wouldn't take the example of RBS to heart and cut their staffing levels in an attempt to reduce the obscene debt they have now run up.The British taxpayer will be paying for this for the next 40 years. RBS will probably have balanced their books in 5 years time and be well on the way to squaring their debt, and the taxpayer will still be holding the toxic debts the government was so keen to lumber us with.
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Comment number 5.
At 20th Nov 2009, Raffleshotel wrote:I run a small business and have an overdraft facility of £13000 with RBS for which I pay for each year. I normally hover around about the -£6000 and this goes up and down throughout the year. In the last two months some clients havnt paid on time with the possibility of a couple not paying at all which will cause obviously a cash flow problem others have suddenly said they are going to pay on 60 days instead of the normal 30 days.
Being proactive I decided that I would approach RBS for a small business loan of £16000. pay off the overdraft and give the business some breathing space. My interview with the 'Business Relationship manager' lasted about an hour. He was 2yrs out of university and he was actually more interested in selling me life policies, remortgage etc etc and would get someone to call me to arrange an appointment.
He promised a decision the next working day but couldnt foresee any problems going on the figures provided. No contact the following day, I chased him, left messages etc. Still no contact after nearly 2 weeks despite leaving a message every third day just to remind him I'm still alive! Ive been with RBS since I started the business in 1987 and had a great relationship with the Business manager for 10yrs or so - he was interested in what I did and would call every now and again to see how things were. I think I get a letter near enough every 18months now introducing a new 'Business Relationship Manager'.
Do I expect to be offered this small Business Loan? I doubt it! From what Im reading elsewhere this isnt unusual. I have a top credit record, all bills are settled on time and Im never late for payments and have never ever defaulted on a loan.
They talk about 'toxic debt' I suspect I will fall into that category even though I have tried to sort my overdraft with them. Unless of course they want me to continue with a high overdraft balance because they make more money that way? who knows - but what I do know is once this is sorted Ill be looking for a new business bank.
The other scenario is that they will withdraw the overdraft facility either completely or by a large amount which, if I make a fuss over this they will!
Id be interested on other small business owners views on this.
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