How many promises about Royal Bank of Scotland have been broken today?

One of the main features of the credit crunch in the UK were the collapse of Royal Bank of Scotland and the UK taxpayer bailout of it. Since then we have been regularly informed that it has recovered and that the sunlit uplands are not only in sight but have arrived. The 27th of January this year was an example of this.

“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.”

I am not sure how you can move “further and faster” on something you have supposedly fixed several times before! If we look back to September 2014 we were told something which is likely to echo later in this article.

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.

Back in 2012 my old employer Union Bank of Scotland was on the case sort of.

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

The International Financing Review put its oar in as well.

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.

Mind you at least someone had a sense of humour on the way.

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

Royal Bank of Scotland Today

Which pack was RBS “well ahead of” here?

The Royal Bank of Scotland Group (RBS) did not meet its common equity Tier 1 (CET1) capital or Tier 1 leverage hurdle rates before additional Tier 1 (AT1) conversion in this scenario. After AT1 conversion, it did not meet its CET1 systemic reference point or Tier 1 leverage ratio hurdle rate.

The rhetoric carries on as Mark Carney is telling us “they (RBS) have made progress” in this morning’s press conference. Although there is a clear warning signal as he deflects a question about it to a colleague. This happens on difficult questions and means that the Governor cannot be quoted in future on the details for RBS.

Reuters sums up the tale of woe for RBS here.

The unexpected result underlines the litany of problems RBS is grappling with, which include a mounting legal bill for misconduct ahead of the 2008 financial crisis and difficulties selling off assets such as its Williams & Glyn banking business.

So “litany of problems” is the new “stronger,safer bank”? So what will it do about this?

The state-backed lender rushed out a statement following the announcement to say it would take a range of actions, including selling off bad loans and cutting costs to make up the capital shortfall identified by the tests of around 2 billion pounds ($2.49 billion).

“Rushed out a statement” is really rather poor when it will have been given advance notice about this but this does echo its response to the 2008 crisis. Meanwhile I guess it cannot go back to the UK taxpayer for more cash as of course it did this only in March.

Royal Bank of Scotland is paying £1.2bn to the Treasury to buy out a crucial part of its £45bn bailout in a step towards returning the bank to the private sector.

This was a way that Chancellor George Osborne massaged and manipulated the UK public finances back then. Was this from Earth Wind & Fire the backing track?

Every man has a place
In his heart there’s a space
And the world can’t erase his fantasies
Take a ride in the sky
On our ship, fantasize
All your dreams will come true right away

I do hope that he will be called in front of the Treasury Select Committee to explain this and that his diary is not too full as he collects new titles. As I suspect we can file this in the bin.

George Osborne has already said he is hoping to generate £25bn from the sale of three-quarters of its RBS shares in this parliament,

The share price is down nearly 3% at 191.5 pence as I type this and perhaps it should be another 3%. The breakeven for the UK taxpayer is just over £5.

Other UK banks

There were more technical and minor failures to be seen.

Barclays did not meet its CET1 systemic reference point before AT1 conversion in this scenario. In light of the steps that Barclays had already announced to strengthen its capital position, the PRA Board did not require Barclays to submit a revised capital plan…..Standard Chartered…. did not meet its Tier 1 minimum capital requirement (including Pillar 2A). In light of the steps that Standard Chartered is already taking to strengthen its capital position, including the AT1 it has issued during 2016, the PRA Board did not require Standard Chartered to submit a revised capital plan.

A confession from Mark Carney

We got yet another U-Turn as we were told that household debt is now an issue which I summarised on Twitter like this.

Mark Carney says “thanks” to a question about household debt which means of course the opposite!

The fact that the subject got a mention is extremely revealing. As nobody at the press conference had either the gumption or the courage to ask Governor Carney how his Bank Rate cut and extra QE would improve household debt we were left with a sinking feeling. Which of course is what Governor Carney had been telling us was happening to house hold debt. Also he has a pretty odd view about lending for cars and automobiles.

Does Mark Carney really think “auto lending” is secured debt as he just claimed? What about depreciation?

There used to be quite a few adverts on the radio for Buy To Let lending for cars which I always thought was bizarre. Either Governor Carney wants to boost this or he used his £250,000 a year rent allowance to have a punt. Oh excuse me, long-term investment.

We were also told that he has plenty of “tools” although when I enquired about a definition of them some were ones he may or may not agree with.

A bunch of them, they sit on the committee with me.

I have been warning about the rise of unsecured lending in the UK and my latest piece on the issue was only yesterday. Perhaps the Governor read it.


There are several issues to consider here. I think that the way Governor Carney has used it to highlight claimed concerns about the rise of household lending is revealing. It enabled him to get this on record with little chance of being challenged as the media rushes to print about RBS. I also note that he shuffled the question about Buy To Let lending to someone else.

Meanwhile RBS continues on its own private ( albeit publicly owned) Road To Nowhere. We have almost infinite inflation in false dawns but a reality of disappointment and failure. After 8 years of this is it time to file the claims of reform in the “Liars Lexicon” mentioned in the comments section yesterday.

Meanwhile we have an example of another of my themes in play. Actual helicopter money from the Indian Air Force.



26 thoughts on “How many promises about Royal Bank of Scotland have been broken today?

  1. In 2015, 121 staff at RBS “earned” over £1 million. The average salary in investment banking was £290,000. Here is how this was explained away by its board:

    “It is important that RBS does not become too disconnected from industry norms,” Sandy Crombie, chairman of the remuneration committee, said in the bank’s annual report. “The committee recognizes the need to maintain a commercial approach to pay and reward the hard work by those employees who are helping to turn around RBS.”

    The argument falls rather flat IMHO when the bank still hasn’t got a clean bill of health seven years after the crash.
    I noticed on the radio that one reason why the capital adequacy failed the stress test was the expected huge fine from the US DoJ for the sub-prime scandal.
    Can we assume that all those who received bonuses prior to the crash will be returning them given the fact that they brought the bank to its knees and that the fine will wipe out any profits made then? Or do they come under the category (described above) of the hard working staff who are helping to turn round RBS.

    Rant over. I need a lie down.

    • wasnt this the bank that some managers managed to take a £100billion debt and repackage ( read fiddle ) it to £90billions, then paid themselves big bonuses on the £10billion they had “saved ” ?


  2. sorry Shaun

    but it seems now after 8 years of doing squat our Banks are still bust and the 10year review is just around the corner

    Everything is being done to save the “precious” ….. apart from anything useful, that is.


    • Hi Forbin

      One of the features of time passing or tempus fugit is that we arrive at the destination. What I mean is that the banks were supposed to be completely reformed in 2018 and yet 2016 is nearly over……

      It is just so Sir Humphrey Appleby.

  3. Great article Shaun.

    As always with the boe, closing the barn door after the horse has bolted. The uk needed an indpendent boe to wean us off our debt based economy. Instead they’ve made it worse.

    The come out with the usual warnings, so that when it does go wrong, they can look back and say we told you so.

    Mendacious behaviour at its worst.

    • Hi Anteos and thank you

      You are right. Today Governor Carney was able to mention rising household debt safe in the knowledge that the media would have prepared questions about RBS and therefore would be unlikely to pursue the matter. He moves on and as you say in future will be able to claim he highlighted. The fact he has fed it is able to “Walk on by” as th song said.

  4. I pointed this out a year or so ago on this blog but it seems like a good time to mention it again.
    When Citigroup ( as it was called then ) was valuing sub prime debt at 5-10 cents on the dollar ( having lost 90-95 percent of it’s value from issue at par ) the Royal Bank of Scotland were valuing it at 80 cents on the dollar. Far too many illiquid assets are marked to model as there is no market to value them. If RBS had actually been honest with their predicted future cash flows on these deals they would never have been saved by the UK tax payer. The retail and payment processing side of the business should have been pulled out and the rest left to rot.

    The UK government decided to move the benefits and pensions processing away from RBS and give it to Citi at exactly the time the extra steady income would have helped, thus further shooting itself in the foot.

    It is through sheer luck that Barclays didn’t end up buying the wreck that is ABN Amro and it went to RBS instead, so any claims of managing the bank well by Barclays are clearly false. Their Quaker founders will be turning in their graves.

    Lloyds was actually well run and forced to take on a failing bank so it’s more extreme loses are not actually its fault although it only has itself to blame for PPI. Its Quaker founders are probably enjoying a slightly better afterlife than the Barclays lot.

    Fred Goodwin is extremely fortunate to have come out of all of this with such a massive payout and pension. He must have strong will power as I would struggle to sleep at night with that legacy.

    As we are all now shareholders in RBS we should be pushing RBS to make sure that any future employment contracts have impressive claw back conditions if the unrealised PnL at the end of their bonus cycle fails to materialise into actual PnL at a later date.

    A proper and honest review of the RBS balance sheet would probably send the share price down to zero so we have a massive conflict of interest going on with the government doing everything it can to protect it. It has been unable to sell of bad loans in 8 years so what has changed now?

    • Ah, ‘mark to model’ , I despair of any ‘model’. GIGO.
      Do you think the civil service should be regarded as ‘unfit’ for purpose , in any sphere its dabbling in?

    • aye bootsy

      It has been unable to sell of bad loans in 8 years so what has changed now?

      that was my point , for the whole banking sector

      no laws changed
      no prosecutions
      no resolve

      and no justice

      just the endless begging bowl



      Let them go, let them go
      Can’t hold it back anymore
      Let them go, let them go
      Turn away and slam the door!

      I don’t care
      What they’re going to say
      Let the storm rage on,
      The Banks can’t be saved anyway!

    • There is a natural conflict between:
      1. Being realistic about recoverability; and
      2. Not going bust.
      As far as I can see, those who could afford to be realistic (Citibank etc) did early write-offs, while those who didn’t (RBS, the Italian banks, etc etc).
      Unfortunately, that means that the latter category are doomed to drag out a sort of twilight existence. They cannot make sensible write-offs or they are bust.
      Look on the bright side – they still pay the hard workers excellent bonuses in the investment banking division.

      • I’m not sure Citi could afford it but they had stricter regulatory laws and they could always use Chapter 11 in the worse case. UK Banks don’t have to MtM every quarter and we don’t have the equivalent of bankruptcy protection. Citi also lost a 1/3rd of the workforce losing the equivalent of city the size of Norwich in the process.

        Citi dropped down to a dollar stock at one point and workers there were technically working for the US government for some of that time when the Federal government stepped in.

  5. Shaun,
    Zerohedge article on negative equity being rolled into car purchases in the USA using lower interest rates (scramble for yield by pension companies etc) and extended loan terms to keep repayments the same for costly replacements.

  6. Hi Shaun
    Clearly we are trapped in a protracted
    groundhog loop that will eventually come to a
    sticky end.
    As I have stated before, the only answer
    that TPTB seem to have,other than masterly inaction,
    is to debase our currency. While they would like us to
    subliminally buy things we don’t need to help “their cause.”
    Will this encourage those who have savings to be more
    creative with such things as currency accounts. bitcoin
    or commodities because the only alternative is to
    continue to act like a rabbit in the headlights?


    • Hi JRH

      There is quite a lot in play right now. I don’t particularly mean today’s oil price move but more the India issue and next week’s vote in Italy. For example we are already being told the Italian vote does not matter much which is a yellow alert in Starship Enterprise terms.

      Speaking of the Enterprise Captain Picard managed to escape a time loop by trying something different. Sadly Cap’n Carney just tries the same old thinsg as you say.

  7. Shaun, RBS should be wrapped-up, its failed and the customers distributed to other Banks who have made a better go of it. Scotland can manage without a bank once they cast off with NSturgeon for Europe, that could be an Italian one ready to serve, maybe MPS?

    Talking of Italy, its only a week since your lasst update. Can we have something around the referendum? My readings suggest that the Renzi vote is not about reforming the country by centralising power for that purpose but about preventing 5Star and others having a realistic chance of taking power due to mistakes in national demarcations a couple of years ago.

    Its time for the Italian banking crisis to “go large” and rock the Euro boat, is the date next Tuesday for some exciting headlines?

    Thanks Paul

    • Hi Paul C

      Don’t worry I find the Italian referendum fascinating. I have already replied earlier that we are being told it does not matter although of course it may take days for the dam to crack. Monte Paschi has had a couple of good days in percentage terms but of course that is from such a low level.

      Anyway you made me take a look tonight and look what I found.

      “The Bank of Italy has identified the UniCredit, Intesa Sanpaolo and Monte dei Paschi di Siena banking groups as other systemically important institutions (O-SIIs) authorized to operate in Italy in 2017. The three groups will have to maintain a capital buffer for the O-SIIs of 1.00, 0.75 and 0.25 per cent respectively of their total risk exposure, to be achieved within four years according to the transitional period shown in Table 1.”

      When you look at the table MPS manages much lower scores even in 2021…..

      Oh and there was something troubling about the UK banks earlier as I watched the Bank of England assuring us direct links were small. There was no mention of contagion.

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