How many more promises about Royal Bank of Scotland will be broken?

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? #RBS

Andrew Bailey

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.

Mark Carney

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!

If Mark Carney does 8 years at the he’d finish in summer 2021, when the top job at the IMF becomes free…






22 thoughts on “How many more promises about Royal Bank of Scotland will be broken?

  1. Hi Shaun

    I listened to your piece on Share Radio.

    I share your scepticism; if you look at the amounts all the banks pay out in legal fees, compensation and fines for wrongdoing it is truly staggering; I believe I read somewhere that around one third of JPM’s net income was paid out in fines and legal defence costs. The overall total for the large banks is astronomical but the wrongdoing is there in plain site and, at the end of the day, no one seems to really care; it’s business as usual.

    I don’t think that the bankers can be regulated or reformed within the current structure; it is a lost cause. There are two things which may change how they behave: a second financial bust which means that reform simply cannot be blocked and fintech which moves intermediation away from them.

    The bust is odds on but we may of course go down the Japan road whereby we live with the (zombie) system, seemingly forever, without meaningful reform ( it is arguable that that is where we are now).

    Fintech may come to the rescue but the banks will resist this and there are of course (understandably) considerable barriers to entry.

    • Hi BobJ

      Yes a 2001 style something wonderful from Fintech would be more than welcome right now! However the barriers to entry would make the experience of the 2 Aussie doctors who found a cheap cute for many stomach ulcers as opposed to the existing expensive treatments look like a tea party I fear. Weren’t they held back for 10 years?

      As the day unfolded the Serious Fraud Office found itself with yet another embarassment as a jury let off 5 of the 6 traders accused of Liebor rigging. All my career the SFO has been a failure but on the upside at least the jury system seems to be alive and kicking.

  2. When I was working at a large US Bank during the 2008 Crisis we were marking some US Subprime debt down to 10 cents on the dollar and we did it quickly. RBS meanwhile were still marking it at 95 cents on the dollar 3 months later.

    US Banks have to Mark to Market every 3 months. UK Banks have a longer time span and since this stuff is now illiquid are they just allowed to Mark to Model? Since seeing that difference I have never trusted the numbers coming from RBS. If they had truly reported their book value in 2009 the bank would have been shut down.

    • exactly

      but as I often post the Bank run this country

      and there appears nothing short of a full blown revolution that will change this

      and that’s nowhere in sight


    • Yes but would they have been shut down? I don’t think they would. Mark to market rules were amended by the FASB and IASB in 2009 under the guise that they amplified volatility.

      It now seems that we have “marked to whatever suits my book”.

      • Bang on. I think they only report the loss when the cash flow fails to materialise (a realised PNL reduction) for that quarter even though anyone with any sense could see these loans were never going to be fully paid. Since a number of these subprime structures were due to pay off in 25-30 years then that still leaves a lot more years of losses. The legal structures behind some of the MBSes and CDOs go on until 2045 so if you are monitoring cash flows you have to keep doing it until then just in case some money final comes in on some of the underlying properties even if all it is knocking down the property and selling the land.

        • Great thread within a thread.

          You make a great point Bootsy and if we take RBS’s Northern Irish mortgage Book,I’d be very interested to know how many IO only loans they have and how many have been marked to the market-down 50%.

          I suspect not many as long as the mortgages are being paid.

          BBC from 2013

          ‘More than half of people in Northern Ireland with interest-only mortgages will struggle to pay off the lump sum at the end.

          Forty per cent of mortgages in Northern Ireland are interest-only.

          However, because the housing crash was steeper and faster than the rest of the UK, more people in Northern Ireland have found themselves in negative equity.

          The average shortfall could be up to £72,000.

          Some 2.6m UK householders have the mortgages but the FCA said “estimates… suggest” nearly half will not have savings or other funds to cover the final bill.’

  3. Enron Bank of Scotland’s finances are not what they promised, who would of guessed it?

    The FCA is like a chocolate teapot. You can change the chief tea maker but the result is the same when he pours the latest ‘financial scandal’ hot water in! Despite their never ending stream of nano-management box ticking forms, which are duly filled in by the financial institution’s compliance team with the ‘correct’ answers to pass, what could possibly go wrong? When real world financial problems surface the FCA are totally surprised and like Bart Simpson with his yo yo “It wasn’t me miss!”. They always have the get out of jail answer: “It’s not our job to regulate and oversee them, it’s The Treasury’s or BOE’s fault”. Will there be any meaningful reforms under the new, head? I won’t be holding my breath. Anybody would think this ineffective, bureaucratic box ticking organisation, was designed and imposed by the EU, oh err, it was.

    • To be fair some things are changing. Banks are now being fined not for breaking a rule but for not having the systems/processes in place to tell if they had broken a rule. This is a definite shift for the better even though it’s a challenge for a bank to make sure it fulfils this. I agree with the thrust of your argument though.

      • Problem is that the bonus pool on these bankrupt banks keeps paying out like it’s 2007.

        Rewards for success are one thing but rewards for failure are another.

        Take away all the tax payer help and RBS would be as broken as 2008.

  4. Take yesterday’s blog and add today’s (both top drawer as ever) and what do you get?
    You get Tsipras, you get Corbyn, you get Sturgeon and last, for the moment, but by no means least, you get Trump.
    What have they all got in common?
    They are most likely, at least to some extent, where they are because of who they are not, rather than who they are.
    Huge swathes of the populations of supposedly democratic countries are looking at their respective establishments, and feeling a nauseating sense of revulsion.

    “Which one is not part of the political establishment? Right, I’ll vote for him/her.”

    Reminiscent of 1920s/30s Europe, and just as dangerous.

    Western liberal democracy has failed, captured so totally by financial interests that mainstream politicians no longer have the shame to hide it.

    • Good summation.

      I thought with the repeal of the Corn Laws the rule of the landed gentry was in terminal decline, but I was wrong, they have made a comeback, with subsidies by the many through crony capitalism, means that we have rare and excessively energy, while the landed gentry are doing very nicely on the renewables subsidies. They even get double bubble, when the energy retailers don’t require the power!

      • Spot on Rods.

        I dislike it when people say to me that capitalism has failed and point to the banking sector.Capitalism wasn’t give a chance to finish RBS off,mainly,I suspect,because the political class either were too stupid to see they were being duped/had too much skin in the game.

        ‘I thought with the repeal of the Corn Laws the rule of the landed gentry was in terminal decline, but I was wrong, they have made a comeback, with subsidies by the many through crony capitalism, ‘

        • Democracy is doomed to failure as it is rule of the mob. You may protest all you like but the current shambles came about as a result of capitalism, whether it be raw unregulated capitalism or crony capitalism, different shades of the same color. The big problem is people, Capitalism, Marxism, Socialism, or Communism are all equally capable of success IF IMPLEMENTED CORRECTLY.

          That is the problem, they are not correctly implemented by the people responsible for such implementation.

    • Hi ‘therb’
      In the US you also have Cruz , currently second to Trump in the republican race, who worries the establishment even more because he is young. And of course Saunders , who is their Corbyn , leading the pools in Iowa and NH in the democrat race.
      The ‘great unwashed’ are not as totally thick as the ‘great and good’ assume. The Hoggs of this world are pretty desperate to hang on to their power base any way they can. What is it now? 60 people own more wealth than the lower 50% of the world’s population.

    • ‘Western liberal democracy has failed, captured so totally by financial interests that mainstream politicians no longer have the shame to hide it.’

      Superbly put RB.As you say,the danger signs are there.Youth unemployment in Greece,Spain,Italy, all>40%….

  5. Shaun,

    I came on here today hoping for an RBS post and I wasn’t disappointed.

    That the bonus pool is paying out-again-is no surprise.

    That the pension is being topped up despite the losses-again-because we’ve got to keep Fred the Shred in the style he’s been accustomed too.Unbelievable.

    And then we have to sit by as more of the supposedly great and clearly inept are swept in to pick up the bumper pay packets/pensions while the peasants are left to pick up the tab.

    We need urgent change in the UK.RBS is the symptom of a deep problem within our society.

    • Hi Dutch

      I was intending to write about something else but as the news emerged it pretty much demanded a response. You are right to remind us of the pension of Fred the Shred because after he disappeared with a bulging wallet the innocent foot soldiers of RBS saw theirs capped. That was very unfair. But that sort of thing keeps happening.

  6. accent to heaven from banks for Blair and Brown. 7 years later RBS is still losing money. A slap with a wet bus ticket for fraud by bankers. Anyone but the UK establishment can smell the stench of corruption.

    We need another democratic revolution – to rein in politicians and make their decisions subserviant to crowdsourced referendums. Iceland had a referendum, let the banks go under and prosecuted the fraudsters. Does anyone need more evidence in favour of rule by referendum ?

    • Hi ExpatInBG

      I agree that the position concerning RBS looks dreadful as we are told again and again that a corner has been turned and then find it is a Roman style road. We badly need ch-ch-changes.

      Actually today has been a sort of corruption day as I note the EU Commission has said this about Bulgaria.

      “Other initiatives have faced setbacks, most notably the anti-corruption strategy. The draft law intended to put in place a new unified anti-corruption authority has been rejected in the National Assembly. Although the government has announced its intention to resubmit an amended proposal, the rejection underlined a lack of political consensus behind the reform process.

      The slow progress in tackling high-level corruption and organised crime cases continues to erode public confidence in the ability of the Bulgarian authorities to deliver justice. The same is true for the uncertain reaction and follow-up to controversies such as the Sofia City Court case in 2014. The fact that many of the recommendations in the 2015 CVM report still require action underlines a lack of determination in the efforts of the Bulgarian institutions in key areas of judicial governance.”

      So a bad day on that front all round I think.

      • Same as it ever was. In the USA it is your constitutional right to record public employees / police. In Bulgaria it is illegal to secretly record – so the politicians can comfortably do their backroom deals, not to mention MP’s immunity from prosecution.

  7. Hi Shaun. Great stuff. And very interesting comments too. One to file away in the “told you so” folder.

    On this basis any thoughts of escaping from the ZIRP/NIRP trap are fantasy. Some of us will be lucky to see the end of this. Very depressing.

    Is this any surprise to TPTB at the BoE? It shouldn’t be. No wonder houses are unaffordable. If they were affordable the banks would be in even deeper trouble.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.