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RBS Swings to Loss on Greek Writedowns

Royal Bank of Scotland Group Plc (RBS), Britain’s biggest government-controlled bank, swung into loss in the first half after writing down the value of its Greek debt and setting aside funds to compensate insurance customers. The net loss was 1.4 billion pounds ($2.3 billion), compared with a profit of 9 million pounds in the year-earlier- period, Edinburgh-based RBS said in a statement today. Analysts had estimated the bank would have a 571 million-pound loss, according to the median estimate of five surveyed by Bloomberg.

RBS, bailed out by the government after its purchase of ABN Amro Holding NV in 2007, set aside 850 million pounds to compensate clients who were improperly sold personal-loan insurance. It also wrote down Greek debt by 733 million pounds after it joined with banks including France’s BNP Paribas SA, Credit Agricole SA and Germany’s Deutsche Bank AG to sign the Institute of International Finance’s rescue plan last month.

“If there was a more normal environment we would have looked at today’s numbers and thought they were a bit disappointing, but we wouldn’t have been too worried,” said Tom Rayner, an analyst at Exane BNP Paribas in London who rates RBS “outperform.” “These are not normal markets though. This is not about the results.”

RBS fell 8 percent to 27.85 pence as of 10:12 a.m. in London trading, the biggest fall in two years. The government paid about 50.2 pence a share for its 82 percent stake in the lender. European bank stocks fell for a sixth day on concern politicians and central bankers are failing to stem the debt crisis. The 46-member Bloomberg Europe 500 Banks Index fell as much as 3.9 percent to its lowest since April 2009.

Greek Exposure

“Greece was the only significant sovereign exposure that we had inherited from ABN Amro among the countries first in the firing line,” Chief Executive Officer Stephen Hester, 50, told reporters on a call today. “In Ireland and Portugal, the other two, although we have commercial positions inside those countries, our sovereign debt position is negligible.”

Revenue at RBS’s securities unit dropped 35 percent to 1.55 billion pounds in the second quarter compared with the first three months of the year. Revenue from the fixed income, currencies and commodities unit tumbled 44 percent to 987 million pounds in the second quarter.

“In fixed income, if you have a crisis around sovereign debt, which clearly spills across all fixed income markets, particularly the eurozone, which is one home markets, you’ll see subdued revenues,” Hester said. “These are markets to be careful not to be a hero — even if that means a slow result.”

Securities Units

UBS AG and Credit Suisse Group AG last week said that second-quarter earnings at their securities units dropped by 71 percent. Barclays Capital, Barclays Plc’s investment banking arm, this week reported a 27 percent decline in pretax profit while HSBC Holdings Plc said pretax profit at its securities unit fell by 12 percent.

UBS, Credit Suisse and HSBC all cut jobs as the sovereign debt crisis hurts trading and investment banking earnings. HSBC pledged this week to eliminate 30,000 jobs by 2013, while Credit Suisse said last week it will eliminate 2,000. European banks have slashed 230,000 jobs since the start of the financial crisis in 2007, according to Bloomberg Industries. RBS has cut 27,500 jobs since Hester took over from Fred Goodwin in 2008.

RBS’s net loss widened to 897 million pounds in the second quarter from a 528 million-pound loss in the first three months of the year.

The bank follows Lloyds in posting a loss for the first half. Barclays, Standard Chartered and HSBC all posted a net profit for the first six months. HSBC reported a 36 percent increase in first-half profit on Aug. 1. Barclays said the following day profit fell 37 percent to 1.5 billion pounds as investment banking revenue declined.

RBS’s core Tier 1 capital ratio, a measure of financial strength, climbed to 11.1 Percent from 10.7 percent at the end of 2010.

Source: Gavin Finch and Howard Mustoe (Bloomberg)