Royal Bank of Scotland (RBS) reported a worse-than-expected loss of 1.99 billion pounds ($3.1 billion) in the first half of 2012 on Friday, as the ongoing debate about the bank’s future and reputation continued.
Analysts had been expecting a loss of around 1.5 billion pounds. Group impairment losses totalled 2.7 billion pounds in the first half of 2012.
The bank has allocated a total of 310 million pounds for settling claims over various scandals: 135 million pounds for claims over mis-selling payment protection insurance; 125 million pounds for costs arising from an IT systems failure in June and 50 million pounds for mis-selling interest rate swaps.
RBS admitted it could not quantify the potential bill for alleged manipulation of the London Interbank Offered Rate (Libor).
Stephen Hester, chief executive of the bank, has already admitted that RBS could be on the hook for a hefty fine related to Libor manipulation. The bank has dismissed several employees over the scandal.
He said today: “The Libor situation is on our agenda and is a stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have in terms of financial and reputational impact. This is the subject of ongoing regulatory investigation but our customers and shareholders should be in no doubt that we are taking it seriously.”
The company reported an operating profit before impairment losses of 4.7 billion pounds. Analysts’ expectations had varied widely because of the difficulty predicting how much of a hit RBS would take over its various reputational issues.
The prospect of full nationalization, at a price above the current share price, reported by the Financial Times Thursday, was dismissed by the market Thursday with RBS’s share price falling.
Bruce Van Saun, chief financial officer of RBS, told CNBC’s “Squawk Box Europe”: “The nationalization chat is driven more by the search for getting more lending into the U.K. economy. I can assure you on that front we are doing everything we can.”
“Some of that (the talk) is not helpful but it shows you politicians are just looking to boost lending. That idea is not a runner and if you look at the reaction from the analyst community, some of our shareholders and even the government that’s a pretty short news story.”
Market sources told CNBC.com that the Financial Times story looked like more of a warning signal to get lending to the real economy underway than a concrete plan from the government. It would be difficult politically to shift more of the burden for RBS’s near-failure onto the taxpayer.
There were also whispers that the story, which a Treasury source denied to CNBC.com, betrays a further split within the U.K.’s coalition government, with minority partner the Liberal Democrats keen to nudge RBS towards more lending to small business and consumers, and the Conservative Party not wanting to further nationalize the bank.
Van Saun, part of the management team brought in by Hester to reshape RBS into a leaner operation with higher capital ratios, said the bank had “made very solid progress” in the first half and increased the “safety and soundness” in its balance sheet.
He said that depressed lending figures in the U.K. economy weren’t just about failure of the banks to lend.
“The limit in the end is your capital position,” he said. All the UK banks have very good capital positions. There will be various measures which will have to take place on the fiscal side to restore confidence. It’s not just a question of supply, it’s a question of demand.
The story has got analysts looking again at how RBS could be reshaped in the future. The potential for a breakup of the bank’s U.K. retail and corporate divisions (rather like the old NatWest, which was taken over by RBS) was put forward by Sandy Chen, banking analyst at Cenkos. “This could provide some of the lending to households and small business the government is looking for,” he told CNBC.com.
Hester said in a statement: “Steady progress in rebuilding financial strength, and resilience in the Group’s underlying financial performance, contrasts with a grim period for the reputation of our industry and for RBS within it.”
“We are in a chastening period for the banking industry. The consequences of the sector’s past over-expansion are still being accounted for, probably with some way still to go. The mistakes and vulnerabilities carried over from that period are both financial and cultural.”