Royal Bank's resilience
Record profits and projections of incremental gains from a massive takeover. That鈥檚 the message from this morning. So what happened to the credit crunch and the global banking crisis?
Well, the storm raging through money markets affects banks in different ways 鈥 and if you are a large, diversified international group like RBS, not all of the impact is deleterious.
RBS has been a beneficiary of the withdrawal of cash by depositors from institutions, like Northern Rock, perceived to be vulnerable.
Worried savers鈥 money has to go somewhere. And both individuals and companies appear to have identified RBS as a safe haven.
says that it has 鈥渆xperienced strong deposit growth鈥. And I understand that more than 拢800m of additional liquidity has gushed into its accounts over the past few months.
At a time when the rates charged by banks for lending to each other is hitting record levels, this inflow of deposits represents cheap money.
So unlike 鈥 which recently warned of a squeeze in net profit margins 鈥 RBS鈥檚 profit margins are improving. Which may, to an extent, offset the expected slowdown in the US and UK economies next year.
RBS has another advantage over banks with a predominantly UK focus. It鈥檚 been able to tap the generous liquidity provided by the and the .
The bank has therefore been less vulnerable to the perceived structural shortage of liquid funds in the sterling money market 鈥 for which the Bank of England鈥檚 conservative approach to the provision of cash to the banking system has been widely blamed.
But let鈥檚 not get carried away here.
RBS has been bashed by the debacle in structured finance and in the US sub-prime market.
In the second half of 2007, it has incurred write-downs of 拢950m on its holdings of assorted securities created from loans to US homebuyers with dodgy credit histories.
At the bit of the Dutch bank which it has bought, there are anticipated write-downs of 拢300m.
And there鈥檚 a further 拢250m impairment charge on RBS鈥檚 holdings of loans made to private-equity buyouts.
Not nice, but a long way from lethal.
Only a few years ago 鈥 before a takeover spree 鈥 damage on that scale would have killed RBS. Today it means that RBS鈥檚 pre-tax profits for 2007 will be a fraction under 拢10.5bn, a new record.
However that鈥檚 no grounds for complacency.
The coming year will be tough for all banks.
And RBS has residual holdings of collateralised debt obligations linked to sub-prime with a book value in excess of 拢5bn.
They are not worthless. But with the US housing market crumbling, further impairment charges may be unavoidable.
I'm 
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Undoubtably good figures from RBS, as far as they good.
Nothing very much on the $52 billion in US mortgage bond underwriting that RBS has done this year. Will the other losers come looking for RBS to share the pain?
A lot of peope talk about media hysteria with the "credit crunch". Surely one question is why the 大象传媒 front page scrolling headline is "Bank makes huge credit crunch write down" and not "Bank makes record profit"?
Nearly every story in this space comes with a scary headline but then the details in the body are often mixed or even quite positive. Companies will always have good and bad areas, the question is why all this focus is on this one (often relatively small) part.
I wonder would they ever be interested in a bank down the road in Newcastle?
I'd say a certain chancellor and governor would love if there answer was 'yes'!
RBS shares were 397p last week and now they are 508p and rising; an increase of 28% in a short period when nothing significant has happened; I know markets overshoot but this is crazy; short term speculators are causing huge volatility whereas fundamentals change only slowly; we shouldn't get carried away by daily market rumours and opinions.
It appears that Sir Fred has once again had the last laugh. Is this the third, fourth or fifth time the City analysts and the media have trailed doom and gloom for RBS only to be proved wrong?
Even now Robert, you cannot avoid some pejorative comments, viz "But let鈥檚 not get carried away here.RBS has been bashed by the debacle in structured finance and in the US sub-prime market."
Of course they have been bashed, it is the nature of business. Profit, after all, is the reward for taking risk. If you do not take risk you cannot make profits - and the City wants big profits, so businesses have to take big risks. What Goodwin and his team have done is diversified across markets (both geographic and business) so that when a risk goes negative it is manageable within the business. RBS has just announced record profits of 拢10.5bn, for goodness sake!
Is this really a business in trouble? Or is it a case of it being a bank that has the temerity not to be based in London (either White City or The City)?
And this is exactly where we see the next wave of inflation being stoked: cash not being drained by HM Treasury, who printed it in the first place to bale out NR. For a stable economy, they needed to take exactly as much out as they put in, effectively replacing the CP channel with themselves as an alternative interface.
I have held a current account at RBS for over 33 years.
I have never had any reason to complain about the way my fianaces have been managed.
The customer service I have received has been excellent I would not consider moving my account to any other bank regardless of any "introductory offers " I would receive.
As a long standing customer I regard RBS as a world class financial services company.
C.Galbraith
OH MY GOD
You have written about a bank other than Northern Rock.
Do you need a lie down now?
The stampede from banks like Northern Rock to the majors is entirely logical, but spells bad news for the smaller institutions.
This just might be the only way the banking system in the UK survives next year, with your A & L, B & B etc going to the wall while the big boys pick up some cheap bargains.
It looks like stagflation is definitely on the cards, which will mean many of the prudent savers will end up losing out as their investments dwindle in real terms.
Could be a good time to switch to index linked savings certificates.
As a Scot, an investor in small businesses, a technologist and involved in economic development then I consider RBS a complete waste of space.
In a report a year or so ago on the availability of risk equity capital in Scotland RBS was mentioned once and only then to say it wasn't involved at all with this sector.
They're completely irrelevant.
If RBS do make a record profit of a fraction under 拢10.5bn, it will be interesting to see if they prudently keep it, or distribute it to shareholders.
Modern bankers seem to live for the moment.
800 million deposits? What's the RBS reserve ratio?
I think we'll see their loan rates fall fairly soon.
The first thing we have to remember here is that this statement should be viewed in the same light as a second hand car salesman. Every word of it is true, but it contains caveats that are not really explained.
Some finer detail indicates the ABN played the CDO card role very well and ended up with only good quality CDO exposure (with limited losses), whereas although RBS had less exposure it was/is of much poorer quality. It's default ratio's are somewhat optimistic what we can assume is that for every 1% fall in the US house prices RBS will write down somewhere between 50-100m.
It's trading update on ABN is worthless , it also remains to be seen how the exchange rate flucuations will effect RBS.
I also find strange the comment the credit quality in the UK is Stable rather than good. RBS has a larger percentage than normal exposure to the UK's sub prime lending, we would expect it to be stable currently, but probably not so stable in 2008.
Finally we come to the statement concerning the use of cash reserves, there should have been no need for RBS to have touched these reserves, so why have they ?.
This smells of the arrogance of Fred and RBS to me, I am not saying there are another Enron in the making, but I am saying that Spin and concealment are very valued attributes at RBS, I hope the FSA have stopped sleeping after NR and look closely at the RBS business practices.
"And I understand that more than 拢800m of additional liquidity has gushed into its accounts over the past few months"
Well done Robert, you managed to read the trading statement like everyone else!!
If banks have a tough year next year, then its about time they felt what its like and hope fully they will learn how abusing customers indefinitely has a penalty to be paid at some point. There is no way these figures can be taken in the context other than those delivered by someone who is desperate to defend an indefensible position, topped by a huge ego that no one appears to want to change.
To suggest the quality of UK debtis in effect safer than that of elsewhere most notably the USA is the commentary of a deluded person who needs desperate help.
RBS debt has not been addressed fully as its US counterparts have doe and it has done the credibility of the company no good what so ever. Once the end of year mark up is complete RBS as other uk banks will revert to their true market pricing, as will the loan books they have yet to mark to market.
"Record profits and incremental gains from a massive takeover. That's the message from the Royal Bank of Scotland this morning."
I don't know how long you've been in this game Mr Peston, but perhaps you'ld like to cast your mind back and think if you've EVER seen a set of results that didn't present a recent takeover in a good light. It's all part of the takeover, you see. All the bad news shunted off to reserves, and thus not reported, and all the good news retained on the trading side to be translated into profit.
Plus, if they can get away with it, a series of spurious provisions made as part of the takeover that, lo and behold, are no longer necessary soon into the new regime, and can be released back to profit as and when required.
And, to cap it all, auditors who have had their teeth removed, and a regulatory authority whose primary aim is not to rock the boat.
Salt, that's the best commodity to have - great big pinches of it!
RBS is an extremely well run bank and does not suffer from the same greed and ego factors which have been endemic at some of the US Banks. With ABN Amro under its wing (a Bank which has some of the best equity and fixed income staff in the City), RBS will be a force to be reckoned with for many years to come. Still wondering why i didn't buy at 397 pence.