RBS Posts Severe Losses, Vows to Make Cuts
On Thursday, the partially nationalized Royal Bank of Scotland (RBS) released figures from end-of-year 2012 revealing losses worth £5.97 billion, or $9 billion.
The bank's fourth quarter losses were 44 percent higher than they were during the same time in 2011. The recent sour numbers can be attributed in part to the bank setting aside a large amount of cash to pay customers who were mis-sold insurance and interest-rate hedging contracts and associated fines, The Associated Press reports. RBS allotted £1.8 billion to compensate these customers and paid £381 million in penalties for manipulating the London Interbank Offered-Rate, commonly known as LIBOR, which is used globally to determine mortgage and credit card rates.
RBS Attempts to Pacify Its Biggest Investor
Faced with sobering figures, RBS announced it will sell assets and scale down on investment banking. By bailing out the bank during the financial crisis, the British government acquired an 82 percent stake in RBS.
After announcing this year's losses the Scottish financial organization said it plans to sell a portion of Citizen Financial Group through an initial public offering in 2015. In addition, RBS will curtail investment banking activities and cut jobs, according to The New York Times.
The moves come after the British Chancellor George Osborne urged the bank on multiple occasions to divert its focus to lending in the U.K., The Wall Street Journal reports. RBS CEO Stephen Hester expressed his approval of the bank veering its activity primarily towards British clients.
In addition, RBS will likely float shares of 315 branches in Britain. Santander, an automotive financing company, was expected to purchase these assets but backed out in October, Reuters reports.
"RBS is four years into its recovery plan," said CEO Stephen Hester in statement released on Thursday. "And good progress has been made. We are a much smaller, more focused and stronger bank. Our target is for 2013 to be the last big year of restructuring."
Hester stated the re-privitization of the bank will occur within the next few years, according to The AP. Much attention has been given to the time frame set out by Hester because it would lift the burden on taxpayers before the next parliamentary election in 2015.
Despite last quarter's significant losses, RBS also saw the strongest profit margins since the crisis. Operating profits reached £3.5 billion, up from £1.8 billion the year before.
While the bank's recovery over the past few years has been relatively positive, the British government may soon start selling a portion of its shares of RBS, even at a loss, to beat the general election, The New York Times states. Some lawmakers have said they would prefer distributing shares to the public.
RBS stock, which dropped 7 percent on Thursday, is still selling at roughly half of what the government paid for it.
Rebuilding a Reputation
RBS is only one of many banks struggling to regain its footing after the crisis in 2008.
'"Along with the rest of the banking industry we faced significant reputational challenges,'" Hester said, as quoted by The New York Times. "We are determined to overcome the cultural and reputational baggage of precrisis times with the same focus we have applied to the financial cleanup from that era."