Bothered and bewildered by RBS
In a banking world beset by uncertainty and anxiety, on paper look as good as could have been expected.
Profits have grown, the dividend is up, and the balance sheet is stronger than might have been anticipated.
What鈥檚 most striking is that appears to have hoovered up almost every spare fiver held by Britons: growth in its UK retail deposits is remarkable.
RBS 鈥 or rather its NatWest subsidiary 鈥 seems therefore to have been the main beneficiary of savers鈥 flight out of Northern Rock.
But RBS does not help its cause by the way it presents its annual results 鈥 which is somewhat confusing, to put it mildly.
It says that the figures to focus on are for RBS minus the big chunk of ABN which .
There is some logic to that, in order to obtain a sense of underlying progress.
However buried away on page 47 of today鈥檚 announcement is the disclosure that ABN鈥檚 contribution to RBS鈥檚 statutory results was actually a loss.
Now it鈥檚 all very well to ignore that loss for the purposes of seeing what happened at the rest of RBS.
But hang on a second, who actually owns ABN? Let鈥檚 be clear: that loss (albeit a small one of just 拢16m) belongs to RBS and its shareholders.
Also, , the bank鈥檚 chief executive, wants it both ways.
He would prefer us to take no account of the real negative contribution made by ABN last year, but does want us to be enthused by the yet-to-be generated incremental profits he expects to make from the acquired operations.
Sir Fred also argues that substantial write-downs on collateralised debt obligations linked to sub-prime and on leveraged finance finance are 鈥渙ne-offs鈥 and therefore can be dismissed when measuring 鈥渦nderlying performance鈥 鈥 which seems a little eccentric.
For RBS, dealing in CDOs and providing leveraged finance to private-equity deals was hardly a marginal activity. And if some of it has gone wrong, well that鈥檚 just the rough that followed the years of smooth.
It鈥檚 not just me who is a bit bewildered. Analysts at , the giant US bank, described the figures as 鈥渟ome of the poorest disclosure we鈥檝e seen.鈥
In these strange times, RBS would surely have inspired greater confidence in its shareholders and counterparties if there had been a little bit less bluster and swagger.
I'm 
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You really just cant find anything positive to say about the banks can you?
Profits up, dividends up, debt write downs noted (and up from the december prediction (including from ABN amro), charges refunded, better than expected cost savings within ABN (something RBS are good at), share price up on the day despite the ftse in general being down.
Why on earth can't you write something positive Mr P
Would I be correct in thinking that they just make it up as they go along and get paid a fortune for doing so ? If these are our 'best brains' (as we are so often told) we realy are in trouble.
What鈥檚 most striking is that RBS appears to have hoovered up almost every spare fiver held by Britons: growth in its UK retail deposits is remarkable.
This dosen't suprise me as I know that if you start work for RBS or any of it's subsidary's then you have to open a RBS current account as part of your employment contract. Surely that can't be legal?
I so disagree with you.
Reasons
1) The level of write downs is based on current values you can achieve in the market. These values are still falling in the US. Hence more write downs are to follow
2) The UK sub prime is going to start this year. When people will realise it is bigger than expected ( Haha have you heard that in other places)
3) If you had to figure the loss on page 47, I can believe that this is the best glossy figures you have.
Could this not be misleading and hence illegal.
4) I don't think Natwest got the best of Northern Rock as they have the worst interest rates in the market. And I don't think they have been ever in Top 5 in any saving accounts.
5) You have not talked about the future. Prospects in 2008-09. The figures are based on 2007 which was a year of two halves.
I could go on but I so disagree with you.
I find that what I have seen of banking , globally, over the last 6months gives me little confidence in the industry I used to work in. There are far too few resignations and dismissals to reassure me that this will never happen again. The City, whose great and good, should have influence over such matters appear to be reluctant to act. Even when somebody does walk it is with a huge golden handshake. Bankers MPs MEPs who is next for the snout in the trough. The industry is riddled with greed. Finally my RBS shares are at least 50% less valuable than they were last year, thank you Sir Fred guiding us into the unknown.
Stuart Hillyard
I think, Robert, you also want it both ways. As I understand it, RBS has stated that these write-downs are the full extent of the losses (and therefore are true 'one-offs'). Furthermore, the effect of ABN Amro is in practice neutral (拢16m is a drop in the 拢10 billion ocean, Robert) and their profitability was hit harder by their one-off write-down. In addition, the RBS number is bolstered by a one-off disposal (of how much I don't know) but you should strip THAT out when comparing true 'like for like' performance. This is what retailers do all the time when they compare year on year profits excluding new store openings. Yes, the new stores are part of the business going forward, (which is why ABN profits will improve the bottom line next year)but they will mask the true underlying performance THIS YEAR.
Great work Robert, RBS are simply trying to turn their loss into a profit. Should they be allowed to do so?
The answer lies somewhere in the FSA's General Principle, Supervisory Review, which states that banks are required to be issued with a bank licence by the regulator in order to carry on business as a bank, and the regulator supervises licenced banks for compliance with the requirements and responds to breaches of the requirements through obtaining undertakings, giving directions, imposing penalties or revoking the bank's licence.
Mr Sants sees no merit in applying the General Principle, simply as it was relaxed ten years ago.
Today's poor disclosure we're witnessing is yet another blatant fleecing, the likes of which we've recently witnessed with the great bank management bonus swindle. It is not helping to put our economy straight, and now RBS amongst others, are to answer for it.
The underlying implication of Robert Peston's analysis would is that RBS has been neither fully transparent about its results nor prudent in recognising loan realisable values.
If Robert is right, the RBS Chief Executive is dicing with professional death. Declaration of losses after the general storm has passed would undermine the Chief Executive, the auditors and even the FSA.
Could the Chief Executive of a major bank really be that stupid? I suspect not.
This seems like a very lop sided view of what in the face of current market pressures are extraordinarily positive results for Scotland's biggest company.
It was always known at the outset that the take on of ABN Amro would provide incremental improvement to the overall earnings and share price of the RBS group.
What the market (and so called analysts like JP Morgan group) may well be doing is judging this integration on the back of the spectacularly successful mergers and acquisitions which RBS group has undertaken in the last 8 years (Natwest, US & Chinese ventures etc etc) which is surely an erroneous comparison to make given the state of credit available on the markets at those times.
Well done RBS - keep up the good work
Please cheer up Mr Preston! Another big UK banks has produced decent numbers so now your focus is on the detail of how they are presented. Surely it is some achievement that Barclays, HBOS, Lloyds and RBS have all got through the last few months in far far better shape than their international peers - UBS, Citigroup, Merrill Lynch, Societe Generale etc.
In the last fortnight Barclays, Lloyds and RBS shares are all up between 15% and 20%, so clearly the market thinks there has been some incrementally good news for these companies. I don't deny that times are difficult for the banks and the economy as a whole and that the banking sector is in part responsible; but give the UK banks credit where it's due (if you'll pardon the pun).
RBS presents great results to the market and the shorters friend Peston decides to pick up on one small issue, to put forward a negative slant. Just another journalist who is the lapdog of the hedge funds and investment banks.
As a shareholder, the news that ABN's contribution was a miniscule loss is a relief.
All we need to worry about now is the American economy dragging on the rest of the world.
Having read your comments on the rest of the banks' annual results over the last fortnight, and seen the slating you've given every single one of them, Robert, I was somewhat surprised to read your out-of-character 'positive' remarks about the RBS announcement today.
I knew it couldn't last for long though - your headline gave that away - and again you've gone dredging (like you said, to page 47) to find 1 problem. And that's the main point you make in your post.
Where's the mention of the increase in profists DESPITE a 拢2.5bn writedown? If that doesn't show the earnings strength of RBS, then I don't know what does.
RBS is a money-making machine, proven to deliver strong results year on year. Your point about ABN returning a 拢16m loss within it's first 6 months of being in the RBS stable really does not concern me bearing in mind some 拢900m went the way of write-downs.
Fair points re the odd disclosure, however no one is going to believe US analysts reporting on UK banks.
The US banks are just wishing the rest of the world's banks to be in the same pain that they are - even when in reality it is only really UBS that is.
So Robert - are you betting against RBS making money out of ABN once integration activities get into full swing? I hope so, and look foward to seeing you eat your words in 12 months time.......
Is anyone in the media capable of actually praising a great performance by a British company??
robert peston must be the only person in the world who can be bothered to read page 47 of RBS results document! Well spotted.
Great set of results from RBS - the stuff you raise about the ABN made me laugh. -拢16m on 拢10.3b profit - is virtually a rounding error.
Three cheers for the RBS management team for making you work so hard for a story.
Respect to Fred the Shred.
Perhaps time for you to get back to reporting on what the beer and sandwiches are like over at Rock HQ.
The underlying implication of Robert Peston's analysis would is that RBS has been neither fully transparent about its results nor prudent in recognising loan realisable values.
If Robert is right, the RBS Chief Executive is dicing with professional death. Declaration of losses after the general storm has passed would undermine the Chief Executive, the auditors and even the FSA.
Could the Chief Executive of a major bank really be that stupid? I suspect not.
Robert you have sunk to a new low ! You cannot find it in yourself to comment positively about a 拢10 bn profit where the write downs are in fact very clear, as is the underlying profit. I'm sure if, through market forces, a bank doubled its profit you would not treat this as part of the operating profit - you would delight in stripping it out. As for Peter Dough's comments I would love to know where he finds an auditor that can turn a loss in to a 拢10 bn profit. Please, get real !
What's clear is that banks are failing to provide clear information to the market on how much exposure they have to bad debts which they may have to write off in the future. This is only causing the continuation of the credit crisis as banks either refuse to lend to each other or push up interbank lending rates.
It's in the interests of those at the top though to make the figures as rosy as possible, for the writers attacking Robert your helping to defend those who present the results in such a way to maximise the bonus they recieve while not helping the market recieve a clear idea of the total amount of bad exposure RBS has which is helping to drag on the credit crisis and damage to the economy as lending is restricted and rates go up.
All of you blithering idiots you have not a single iota of understanding about how the financial markets work, should refrain from slating Robert Peston untill you can match his experience and level of knowledge on this subject.
#16
Methinks Robert can read as far as the first page he can pick a negative from..whether it be page 3 or page whatever.
"Well spotted " I don't think so
"bluster and swagger"... Pretty much sums up RBS's real contribution to the Scottish economy.
Dear Mr P,
Frankly I have been bothered and bewildered by your reporting on banks over the last few months. Nevermind leaving banks alone, you just cannot stop yourself from negativity on banks even in the face of fantistically encouraging results (ref also your comments yesterday re HBOS' results sounding the deathknell of bank profits). The truth of the matter is that RBS, and many other UK banks, have managed extraordinarily good results inspite of the intense and extraordinary circumstances in global credit markets. The banks' shares generally did not benefit from the good years, so I do not see any sense in clobbering them in leaner times (that is, if you can call 拢10bn profits leaner). Somehow, I think the media, market makers, hedge funds, are in cahoots to drive UK bank shares down to even more ridiculously low levels (they were already low last year).
Let us not forget that 'bad' news is the only news! Journalists rarely report on the good things, so they have to find something negative.
Far from being hidden on page 47 the tiny negative contribution of ABNAmbro to the RBS results is very prominently shown on page 1. There is a direct summary comparison of the results with and without the ABNAmbro contribution. Really Mr. Peston, can't you even read page 1 instead of being spoonfed from the negative spinning US investment banks.
Companies trying to put a positive spin on their results - goodness, it's unheard of, whatever next?
If there is clear evidence of wrongdoing or mis- representation, then please publish it or take it to the appropriate authorities. However I suspect this is just another example of Pestonomics where a dark and sinister conspiracy theory lurks behind every announcement.
The emerging picture is that the UK banks seem to be weathering the storm better than expected although the continuing difficulties in the USA may yet present more problems in 2008.
Surely it must be time to get back to Northern Rock?
I just looked at the 2007 highlights right at the start of the RBS results.
Profits including ABN Amro are GBP 10,282m. The figure excluding ABN Amro is GBP 10,298m.
The difference between the two numbers gives your figure of GBP 16m.
So, perhaps you don't have to read through 47 pages if you can do simple arithmetic with the information on page 1.
Then again, maybe this is asking too much...
Your article implies that RBS have hidden the ABN AMRO figures on page 47 of their annual results.
Actually, this is not true: the figures you need are given in the 2007 highlights right at the start of the RBS results.
Profits including ABN AMRO are given as GBP 10,282m, whilst the figure excluding ABN AMRO is GBP 10,298m.
The difference between the two numbers gives your figure of GBP 16m.
So, you don't have to read through 47 pages if you can do simple arithmetic with the numbers that are highlighted on page 1.
I am sure there must have been many responses pointing out that the ABNAmbro contribution to the RBS figures was most prominently given in the introductory few pages to their accounts. Clearer it could not have been.
Not suprisingly you show your true colours and display your negative approach towards RBS. Typical cynical 大象传媒 journalism. At least you are consistent in your approach. As an RBS employee, I am amazed about the general level of scepticism RBS receives from so called analysts. Despite posting consistent returns year after year even in difficult market conditions, the so called analysts find it difficult to find anything good to say about the business. RBS is a world class bank with world class people and as Sir Fred Goodwin said in a note to staff last year - we will continue to deliver the result.
By my calculations, during these times of terminal crisis in banking, RBS are making in excess of 拢350 of clear profit PER SECOND, every second of every day.
I am looking forward to my next bumper dividend. Thanks, Fred.
You can tell from the front schedules that profit including the ABN acquisition is lower than excluding it. Doesn't appear to be anything hidden to me. Why so miserable about a string of tremendous bank results - if everything is so terrible why has there not been an enourmous drop in profits like in some other countries?
Fred Godwin's description of the write offs as a 'one-off' is disingenuous and alarming.
The write off for this particular mess may be a 'one-off' but his implication seems to be that the management team who got the bank involved in these instruments of dubious provenance took no other similar decisions and risks - this seems very unlikely.
It is surely far more likely that this was one of a number and that RBS has exposure to other fool's gold investments.
That is unless he really did mean this was a one-off decision from the investment teams and they normally wouldn't touch investments they couldn't completely verify - there's worse to come from RBS.
Another blog aimed at making the banks look bad.
Bear one thing in mind Preston.
This country, as the biggest financial centre in the world, would be in a complete state without these economic powerhouses.
It sounds like you were once bitten by a bank and are using your blog as a personal vendettaa against the industry.
Shame on you and the 大象传媒 for allowing you to do it.
Dear Mr P,
Frankly I have been bothered and bewildered by your reporting on banks over the last few months. Nevermind leaving banks alone, you just cannot stop yourself from negativity on banks even in the face of fantistically encouraging results (ref also your comments yesterday re HBOS' results sounding the deathknell of bank profits). The truth of the matter is that RBS, and many other UK banks, have managed extraordinarily good results inspite of the intense and extraordinary circumstances in global credit markets. The banks' shares generally did not benefit from the good years, so I do not see any sense in clobbering them in leaner times (that is, if you can call 拢10bn profits leaner). Somehow, I think the media, market makers, hedge funds, are in cahoots to drive UK bank shares down to even more ridiculously low levels (they were already low last year). With PE ratio of less than 6, dividend cover of more than 2, this is an opportunity of a lifetime. Get in now!
These are some of the guys that thought up so many different ways to shunt hundreds of billions of slicing and dicing off the books... do you really have complete faith in any of this? More fool you if you do.
It is the revulsion induced by their rather questionable practices that is driving much of the backlash from many quarters, and I see no problem with this.
It is not the sentiment that is "talking the market down" it is the fact that no one really trusts them any more, which of course is caused by their rather questionable practices... they will truly be the architects of their own downfall.
Well explained Mr Preston , keep up the good work and THE STYLE OF PRESENTATION. It is refeshing to hear a different style on 大象传媒.
It is not surprising that the RBS chief executive would want to put a positive spin on the figuers and try to talk up the business of the bank.
In contrast, one would expect the 大象传媒's business editor to put the figures into context, with no added spin - be it postive or otherwise.
Robert you are a one trick pony that is very boring. I will avoid your reporting in future. You are dangerous to our banks and economy.
It is not surprising that the RBS chief executive would want to put a positive spin on the figuers and try to talk up the business of the bank.
In contrast, one would expect the 大象传媒's business editor to put the figures into context, with no added spin - be it postive or otherwise.
Anyone who thinks that RBS Write downs are a one off are either naive or incompetent. RBS have recently purchased ABN Amro at the height of the credit bubble therefore paying top dollar for a bank that they probably could have purchased for half the price now so expect that to filter through numbers over the next couple of years but also ABN Amro have been one of the bigger players in the structured derivative markets for many years and were the first bank to launch CPDO's (Constant proportion Debt Obligations) a good many of which are currently being priced to model (Cost) and are in fact close to worthless. Do not be fooled by the banks who are constantly saying this is a off or we have disclosed everything because there is a lot more to come.
At least RBS has all of its subprime related losses in trading P&L. Compare to ING who has 鈧1.4bn hiding in reserves. Basically 16% of its profit for the year. This is why its possible that a large percentage of subprime losses will never hit the P&L....unless of course valuation turns into realisation!
Peston the pessimist strikes again. There really is no satisfying you when it comes to banks is there? A 拢16m loss in the first year after acquiring a subsidiary? I think thats not too shabby, especially considering the year that banks have had, with billions of losses floating about in the banking world.
And yes, shareholders should be "enthused by the yet-to-be generated incremental profits he expects to make from the acquired operations". That is the nature of shares, their valuation is based on the FUTURE performance of companies, not the past or present which you seem to be focused on so much. Could it be that this is the beginning of the end of the credit crunch?
No amount of smoke & mirrors in the presentation of accounts is going to prevent a UK sub-prime meltdown this year. News from Peloton confirms worse is to come. Many of Peloton's assets were of good quality, but even that could not save them. And don't be fooled by the 'crisis what crisis' brigade.
I think Robert Preston has the right idea. When something looks too good to be true, it usually is. What amazes me is the silence over the Natwest three. They were let off by RBS, for what exactly? I would like to know.
"buried away on page 47".
The comparison of the RBS results with and without the ABNAmbro contribution could have hardly have been made clearer i.e. it was highlighted in the first few pages of the RBS results. ABNAmbro did indeed make a tiny negative contribution for the end of last year, but FG has said very clearly how this will be earnings accretive in future years.
Mr Peston
I can understand your comments regarding RBS for you have been trying to talk down the Banks for weeks since you started the Northern Rock debacle.It must be difficult for you when the results do not portray the doom and gloom which you suggest is the case. Perhaps you should turn your attention to another sector and see if you can have a similar effect.
Critics of Robert Peston are misguided. Yes, they are correct to protect successful businesses which generate value for UK plc - so much tabloid journalism reacts negatively to the profits which support the public expenditure and pensions of each and every one of us.
Where they are wrong is in believing that Robert is being sensational at this point in the cycle. Shooting the messenger at what is a time of almost unprecendented financial turbulence and threat to stability, is misguided.
To believe that Robert is guilty of sensationalism, you'd have to be either unaware of the real state of the crisis (not seeing the elephant in the room) or invoking self deception (the ostrich position).
Make no mistake we are in difficult times. Perhaps Robert can tell us what the tier 1 capital position of RBS would be if we stripped out intangibles. There was a Citi report in 2007 entitled "Beware the Uber Leveraged 3". Those 3 were RBS, Barclays and Deutsche - and that was before RBS created more intangible goodwill from the ABN acquisition.
Any shareholder celebrating the next dividend should pause and reflect on F the S's record on creating shareholder value. It was the Spanish who cleaned up from ABN, and Barclays just avoided getting the black spot.
If you still feel comfortable with capital ratios and value creation, then feel free to continue the barrage of criticism.
I have stopped reading Mr Pestons comments since he has lost all credibility with me as a financial reporter. It is so obvious that there is an editorial agenda to be negative on business news that even good news is reported in a negative way. I suspect this is because Mr Peston would like to be the first to report the 'green shoots of recovery' once he has got the recession he so desperately wants - after all, business journalists will still get paid wthether they report good news or bad news. Why doesn't he try his hand at finding negative stories to write about teenagers too - he'd be good at that !!
Back in the real world - i speak to friends across a wide range of businesses who talk of hard work and long hours but are reasonably positive about the business climate.
I don't suppose anybody is interested in that though.
Here, Here Pat. Not content with single handedly destroying the lives of every Northern Rock shareholder Mr Peston now turns his attention to RBS. His naive and illinformed reporting (no doubt cribbed from the equally flawed JP summary) must be stopped, and no I am not a shareholder.
This seems to have triggered a lot of comments from RBS employees.
keep up the good work Mr. Peston.
Pretty negative stuff Robert. Sorry the results were too complicated for you. Next time ask Sir Fred to write in blue crayon on a post it note. Focusing on ABN part for period 17th October 2007 to 31 December 2007 (the period RBS/Santander/Fortis have owned ABN) is pretty pointless, which is why RBS concentrated on the performance of the rest of the group. ABN picture will become clearer next time, after a sensible trading period in the hands of RBS.
Sir Fred & Co. must be wondering what more can they do, although I guess they're pretty thick skinned by now.
On a share price of circa 390p
EPS 78.7p - so P/E ratio 4.96
Div 23.1p making 33.2p full year - so yield 8.51%
Cost income ratio down
Impairment losses down 1%
etc etc
The RBS share price seems to be dogged by a deep rooted mistrust by apparently thick analysts, who whinge about the complexities of the results. Sheer laziness - the information is there for shareholders and analysts alike on the RBS website.
Slide 32 of the presentation is interesting, as much has been made of the headline cost of ABN (Euros 71Bn). RBS share, less the share of La Salle sale proceeds, equates to Euros 14.3 Bn, or 拢10bn. Hey, that number sounds familiar - oh yes, I remember now, its the amount of profit RBS made in 2007. ABN projected to give a return on investment of 16% in 2010
Core Tier 1 Capital ratio is 4.5% - so what - we've seen the pattern before with the NatWest acquisition - with consistent rebuild of the ratios post-acquisition. Don't forget that RBS is one of the few banks whose risk systems and procedures have achieved the advanced standard for credit, under Basel II
I reckon RBS is a better option for cash than in a building society or mattress.
I think many of the posters here are missing the point somewhat, as is Mr Peston. The issue with the share prices of financials at the moment is not so much "underlying performance" or the sucess or failure of acquistions, but fear of what could happen in the future.
Anyone who has studied economics will tell you that the stock market is a forwrad pricing mechansim and bearing that in mind, the prices in the market for financials at the moment reflect the significant risks facing the industry over the next six months to a year. Whilst I don't think it can be proved we are in a recession yet, there is certainly a subtantial risk that we may be in six months. Whilst it can' be proved that there is a big conspiracy between banks to cover up writedowns, there is a substantial risk more could arrise soon. Whilst there is no proof bond insurers will be downgraded there is a risk they may be. Currently the market is pricing in the risk that these and other events which would be damaging to the sector could occur.
Personally I don't put much stock in the fact banks are all increasing dividends by approx. 10%, in a way they were all forced into it by each other and this is not necessarily an indicator of good future performance.
I believe in the near future that share price risks in this sector are very much on the downside, unless january support levels are re-tested and affirmed and so market sceptism even in the face of seemingly good results) does not suprise me.
Fools, fools, fools, all the bank are hiding the CDO losses under the mat. Many have conveniently pushed the write downs into next year's budget (2008/2009). As Deepack pointed out the write downs are based on current valuation - not expected valuation of CDO material. Also I think I need to clarify the false impression people have when they talk about banks. Trust - the banks don't understand trust, unless it's collateralised, so why are so many people surprised the banks have kept a lid on this credit crisis for so long (for their own benefit)? DO NOT TRUST ANY BANK, treat them like the snakes they are and make sure you have a mongoose!
Hang on, Page 5 shows Group results including ABN and Page 4 results excluding ABN. Now I'm not an experienced investor but I didn't have to go to p47 to work out ABN's results?!
Looks to me that Peston and 大象传媒 has got vendetta nagainst anything scottish. First it was Northern Rock and now it is Rbs. He thinks he can destroy anything Scottish and damage the prospects of one of the best British banks. He needs his head examined. I thought he would not stoop so low. Goods result dont need scrutinising a page 47.
It is a shame if BBc and the Pest cant accept the facts.
Weren't ABN one of the Dutch banks that were early retailers of 125% mortgages some isx seven or more years ago?
Dear Robert
I am a proud employee and share holder within RBS.
have you ever considered a post at the Daily Mail or Express. both massive propaganda vehicles and would suit your style well.
Stop picking on one of if not the largest corporation tax payer in the UK, i feel we give more than we take.
Blie me - hedge with no regulation and above the Government radar could be nasty for customers!