This morning has seen an event that has become a regular event in the credit crunch era. In fact it has become so regular that I note analysts are calling it a “surprise”! That is the annual event where the figures of Royal Bank of Scotland are produced and they are again bad. We are seven years or so into the credit crunch but the promised recovery here appears to be like the “train in the distance” sung about by Paul Simon. Let us take a look at today’s problems for it. From Reuters.
Royal Bank of Scotland (RBS.L) said it would take a surprise 2.5 billion pound ($3.58 billion) hit to its fourth-quarter profits after setting aside more cash to cover litigation costs, compensation for mis-selling loan insurance and an impairment charge at its private bank.
You might reasonably think that this is bad enough and I did warn about the surprise bit. But wait like the doppelgänger of the gift which keeps on giving there is sadly more to come.
RBS said in a statement that it would also make a 4.2 billion pound payment into its pension scheme due to changes in its accounting policy, while it will set aside an extra 2.2 billion dollars for mortgage-related litigation in the United States.
So the clear winners here appear to be the lawyers who lose about as often as top bankers. I am reminded of my article on pensions on Monday as we see “accounting policy” lead to a substantial change in another situation which is a shambles. Also if we look at the BBC we see that there is more.
In addition, it will write down £498m from its private bank Coutts.
We also got a statement that could have been produced in any of the years since the UK taxpayer bailed the bank out.
“I am determined to put the issues of the past behind us and make sure RBS is a stronger, safer bank,” chief executive Ross McEwan said.
“We will now continue to move further and faster in 2016 to clean up the bank and improve our core businesses.”
It is rather like the time in each ECB meeting when President Draghi talks about the need for structural reforms because if you turn up next time and there it is again. The 2016 in the statement could be replaced with 2015,14,13,12, and so on. Or to put it another way in the words of Talking Heads.
Same as it ever was
Same as it ever was
If we consider this in terms of that ITV television program let us consider this from Mindful Money on September 11th last year.
we expect to spend much of the next 18 months simply marvelling at the sheet size of the RBS’ capital surplus and wondering why it is just sitting there gathering dust,’ he said.
They must be greater value now at 254 pence than the 330 pence of back then so you can buy and marvel at the capital surplus or perhaps not. The poor UK taxpayer is in at around £5 so they are far away from the profits which were originally promised.
A journey back in time
If we jump into the TARDIS of Dr.Who then we see this from Chancellor Alistair Darling in the Guardian on the 13th of October 2008.
There is every reason to be confident that, as we go through this, the British taxpayer will get his money back.
If we look at the review of 2012 by The International Financing Review then things were apparently on track.
In some ways, however, RBS is well ahead of the pack…….RBS was forced to concentrate on what it was good at and should come out of its current (second) restructuring as one of the more efficient banks in the industry.
My old employer Union Bank of Switzerland had a go too back then.
However, with 2013 expected to be the last year of significant restructuring for RBS, it is likely to be one of the first European banks to have dealt with legacy issues
If we advance to the figures released in January of 2014 we see that BlueBullet on Twitter had a wry take on events.
Dear Dragons Den, I have 80% share. Losses this year are £8 billion. I am paying out £0.5 billion in bonuses. Would you like to invest?
Whilst you may not have heard the name you are virtually certain to have seen it as Andrew was Chief Cashier of the Bank of England and so his signature was on banknotes issued then. He is and will soon be was a 30 year insider at the Bank of England and is currently performing the roles shown below.
Deputy Governor, Prudential Regulation at the Bank of England and Chief Executive of the Prudential Regulation Authority (PRA),
He is now about to be head of the Financial Conduct Authority or FCA although the date on which he will assume the role is unspecified. This role has in football terms had an “interim manager” who unlike Rafa Benitez did not want a permanent role. Actually since the sacking of Martin Wheatley there was a shortage of people willing to take on the role. Presumably they were concerned about the contradiction between the fact that Mr.Wheatley got the order of the boot and how the Chancellor described him.
Britain needs a tough, strong financial conduct regulator. Martin Wheatley has done a brilliant job of launching the FCA in tough circumstances.
So brilliant he got removed! Now we have got ourselves an insider and I have to confess I am troubled by this development. The Bank of England has had a troubled record itself with the Li(e)bor and foreign exchange scandals where it seems to have done much more covering up than exposing. Also Andrew Bailey put senior bankers above the law of the land back in 2012. Here is a letter from a Mrs. N. Turner quoted on the blog of the journalist Ian Fraser on the subject of prosecuting banks and their directors.
would be a very destabilising issue. It’s another version of too important to fail. Because of the confidence issue with banks, a major criminal indictment, which we haven’t seen and I’m not saying we are going to see… this is not an ordinary criminal indictment.
Her concern was that banks and bankers were being put above the law. I expressed my concerns on this issue on the Investment Perspectives show on Share Radio yesterday.
Also there has been another development at the FCA as the Financial Times informs us.
Today (26 January), the FCA separately announced the appointments of Baroness Sally Hogg, chairman of the audit committee at John Lewis Partnership, and Ruth Kelly, former global head of client strategy at HSBC Global Asset Management, as non-executive board members from 1 April.
Why is this an issue well even cuddly old John Lewis has a dark side from its sale of its store card business in 2003 and yes it was sold to HSBC and Ian Fraser has summed it up on Twitter thus.
well the £1bn of allegedly illegal store-card charges were gouged from, inter alia, customers of JLP store cards.
If you have seen the name Hogg before well her husband claimed moat cleaning in his parliamentary expenses and her daughter is now Chief Operating Officer of the Bank of England as well as of course the many roles the Baroness has. That family is pretty much what some would call “the great and the good” for which you can find many definitions in my financial lexicon for these times.
Lets us move on with the thought that if you were allegedly picking people to cover something up then those with a past history which involves themselves would be at the top of your list…
If you would like to take The Matrix style red pill then the Financial Times offers to help you.
Andrew Bailey’s appointment as head of the FCA given the thumbs up by the City:
For those who took the blue pill that is a potential sign of what Taylor Swift called “trouble,trouble,trouble”. We find that RBS is singing along with Talking Heads and should be filed along with the other basket cases such as Deutsche Bank and Italy’s Monte Paschi.
We’re on a road to nowhere
Come on inside
Takin’ that ride to nowhere
We’ll take that ride
Policy could not be more bank friendly and yet they are still in quicksand. A sign of this is that if today’s title seems familiar then you are right as I have plagiarised myself and used one from the 2014 results of RBS.
He came under fire at the Treasury select Committee for being an “unreliable boyfriend” if I may put it like that on the subject of what term he will serve. Graeme Wearden of the Guardian regularly quotes my research and output and I guess I have been something of an influence. I am glad to see that the message is spreading!