Will the UK taxpayer ever get back the money invested in Royal Bank of Scotland?

Today we find ourselves arriving at what has become an annual event although sadly there is never any money for a party although we are invariably promised that there will be plenty of cash next year. This is of course the announcement of more bad figures from Royal Bank of Scotland as we look back over all the promises made on its behalf which stretch back now to the beginning of the credit crunch. Let us step back in time to the 13th of October 2008.and see what the then Chancellor Alistair Darling told us  in the Guardian.

There is every reason to be confident that, as we go through this, the British taxpayer will get his money back.

The UK taxpayer invested at around £5 per share and this morning’s price is £2.44 so it looks as though Alistair will have to remain confident for quite some time and maybe forever. Also we learn that so-called alternative facts come from official sources as well as unofficial. But as time has passed others have proclaimed triumph only to see disaster.

Here is The International Financing Review from 2012.

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.

I am not sure how much more they could have been wrong! But they were not alone as this from a former employer of mine Union Bank of Switzerland proves.

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.

We can put that as a clear fail as the 2017 figures will show us later as we mull whether RBS will ever be able to sing along with Taylor Swift regarding legacy issues.

Baby, I’m just gonna shake, shake, shake, shake, shake
I shake it off, I shake it off

Along the way we have at least managed a little humour as this from Bluebullet on Twitter from 3 years ago shows.

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

Today’s data

Chief Executive Ross McEwan told us this only last year.

“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.”

Does he think so? Well according to this in the Guardian he does although you may spot the bit that makes him think so.

“The bottom line loss we have reported today is, of course, disappointing but given the scale of the legacy issues we worked through in 2016, it should not come as a surprise,” said the RBS chief executive, Ross McEwan, who was paid £3.5m for 2016.

Okay so what was the loss declared?

Royal Bank of Scotland has reported losses of £7bn for 2016, taking its losses since its 2008 government bailout to more than £58bn.

 

The taxpayer-backed bank has also admitted that it will not return to profit until 2018, indicating that it will report 10 years of losses before it returns to the black.

There are a litany of issues here as we note yet another large loss. For Mr McEwan there is an awkward trend to explain as losses have gone £1.5 billion then £2 billion and now £7 billion as he has promised improvements. For the UK taxpayer there is the issue that the losses since the bailout are now larger than the funds invested. Next there is the fact that things are apparently so bad even these serial fakers cannot claim a profit is just around the corner!

If we switch to the Financial Times we see two of my themes being deployed as a defensive mechanism. Firstly losses are always described as a one-off which are nine years and rising of them is risible and secondly the way a bit like inflation measure we keep getting them until the “correct answer” is given.

In total, these one-off conduct and restructuring costs amount to £10bn. This pushed down the bank’s capital reserves, with the common equity tier one ratio dropping to 13.4 per cent, from 15.5 per cent a year ago. On a pre-tax basis, RBS reported an operating loss of £4.1bn, compared to a £2.7bn loss a year earlier. Its core business, comprising commercial and retail banking, delivered its eighth successive quarter of £1bn operating profit, stripping out one-off items.

So it made a profit right?

Reform

I have been critical of other countries on such matters so it is now time to apply similar methodology to the UK and the botched efforts with Williams & Glyns should lead to sackings of those involved. From the Financial Times.

This includes the £750m cost for the new Williams & Glyn plan unveiled last week. RBS has spent some £1.8bn over a number of years on attempting to divest Williams & Glyn.

They have splashed the cash and then given up after buying time with our money in a saga rather like Novo Banco in Portugal.

There are also more problems on the horizon as of course RBS was involved in so much miss selling and the issues with small businesses seem to just grow and grow. As to optimism well there does not seem to be much on display here in this from the Financial Times.

Mr McEwan is targeting £750m of cost savings this year, as part of a total £2bn of planned cuts over the four-year period, which is expected to involve hundreds of job losses and branch closures.

Comment

Actually the banking environment is really rather favourable. For example the UK economy returned to solid economic growth nearly four years ago and the Bank of England regularly rustles up a new bank subsidy plan. The latest one called the Term Funding Scheme  has now grown with little public attention to just under £42 billion. On that theme there was this from City AM yesterday.

Mortgage lending hit £18.9bn in January, new figures have shown – two per cent up on the same month last year, and the best January since 2008.

Enough to cheer both a banker’s and a central banker’s heart. Indeed the theme has been reinforced this morning by mortgage approvals rising to above 44,000 in January according to the British Bankers Association. The most similar bank to RBS is Lloyds Banking Group so how did it do this year?

Pre-tax profits increased by 158% to £4.24bn, a level last seen in 2006 before the financial crisis. ( BBC )

Next nearest is Barclays so what about it?

The bank reported a profit before tax of £3.2bn for 2016, up from £1.1bn the year before. ( BBC )

As you can see if they are from Venus RBS looks like it is from Mars. It needs a change and needs to go one way or another. What I mean by that is the taxpayer should fully own it and raise the current stake of around 72% to 100% or it should be sold-off and left to stand on its own. The current half-way house is doing no good at all. The fact that Lloyds is now nearly fully in the private sector ( ~96% of shares) is a guide but maybe not as much as we think as of course the shares were more easily sold off because it was already doing better than RBS.

 

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26 thoughts on “Will the UK taxpayer ever get back the money invested in Royal Bank of Scotland?

  1. It’s all extremely frustrating. Five or six years ago we were told Stephen Hester had it all licked, and that he should be paid a fortune as he was one of the only people alive who understood the RBS balance sheet. Well I for one am calling bovine on that. I think you are right Shaun, and to clarify by that I mean the remaining private RBS shareholders and subordinate bond holders should have been torched years ago. Surely that’s how it is supposed to work with capitalism? As a society we need to work out if we are living in the Crazy World of Arthur Brown (Fire) or The Strawbs (You can’t get me) I’m part of the (banking) union.

    • ‘to clarify by that I mean the remaining private RBS shareholders and subordinate bond holders should have been torched years ago. ‘

      x2.

      The bail out didn’t work unless you call nine straight years of losses working.

    • I knew Hester from my days in banking years ago and the idea that he would sort anything out is frankly risible. He was a reckless salesman of dodgy products to naïve clients while at his investment bank, which I suppose is why he got the RBS job.

    • “Surely that’s how it is supposed to work with capitalism?”

      Yes it is but we don’t live in a capitalist society, we live in a bastardised Marxist one where the proletariat (taxpayers) are allowed to share in the losses but whenever a bank makes a profit that is reserved for the bourgeoisie.

  2. I suspect a lot of RBS’s problems derive from the fact that it is effectively owned by the state. Barclays managed to avoid that pitfall. The state has a track record of interfering badly and is poor at running businesses.

    • RBS’s failure is more to do with incredibly shoddy lending during the bubble,a disastrously timed takeover of a bank with massive problems and Fred the Shred was innocent.

      Noone could have saved them or Northern Rock from failure.

  3. Next year things will be better, oh yeah! More fines, more bad practice discovered, more compensation to be paid and more bad loans reported.
    If RBS had been split, years ago, some of the parts might be making a reasonable profit, but now it is going to be years of losses. God knows what staff morale must be like, I suspect anyone who is any good, is looking to jump ship!

    • Hi Foxy

      We know from the other similarish UK banks such as Lloyds and Barclays that the environment is pretty good which us confirmed by the mortgage data. But for RBS to do even okay then past mistakes need to stop coming out of the woodwork. I expect we will see more of them.

  4. I still think the people who bailed it out should be accountable.Both Gordon Brown and Alistair Darling have gone on to nice little earners with other financial institutions with our oh so compliant press barely asking them a question about what they did.

    • Hi Dutch

      These things were carried on by the next government which covers everyone in the political establishment except Ukip and the Greens. Actually in the case of George Osborne at least the trend of going onto nice little earners has remained. The question I would really want answered Brown and Darling was how HBOS was foisted on Lloyds that otherwise would have done a fair bit better.

      • It was probably achieved by Brown grabbing Eric Daniels by the lapels and swinging him around and against the wall, at that moment had it been me I would have had Brown by the balls in a vice like grip!!

  5. Hello Shaun,

    “he latest one called the Term Funding Scheme has now grown with little public attention to just under £42 billion.”

    Ah my friends the Banks again , try getting £42 billion for any other industry or service

    and isn’t it true that Lloyds has cost me , a taxpayer , nothing ?

    we did sell for a profit ? no?

    as for RBS , split it up and let me have Natwest back again 🙂

    The Scots can take the rest ( with losses )

    Forbin

    PS: still no prosecutions ?

      • Yes, no money for Tata steel and £42 billion for the banks under just one of the many schemes, it pulls into perspective the British Steel debacle of the 80’s when there was a national outcry because it was costing the taxpayer £365 million a year (about £1.3 billion today) doesn’t it?

  6. Hi Shaun,
    Taking a leaf out of the BoE inflation tactic, shouldn’t we be “looking through” this temporary and “surprising” loss.
    Also, please remember that bonuses have to be paid to “stop our talent walking out of the door”.
    Sorry – it has been a long week and my cynicism is showing through.

  7. If RBS are still doing so badly in relatively good economic times it makes you wonder what will happen when the next recession kicks in (probably in the near future).

  8. it’s only a failed bank, wind it up and pay depositors their first 100K. If shareholders want to save it, they’d better send a cheque ….

  9. The people responsible for this unconscionable debacle are each and every one of us .
    We live in a democracy we elect people to represent us who are so so stupid/corrupt that it is beyond belief.They thought debt and growth could continue indefinitely do they never wonder why trees do not grow into the clouds or why you cannot squeeze an orange and get juice out of it indefinitely.
    Goodwin is on a six figure pension yet those who sat with him on that board failed in their duty of corporate Governance,yet no one is too blame no one has been held accountable.
    After the crash Glass Steagal type regulations should have been reinstated.
    They haven’t been because the politicians fawn over corporate entities and the people become more and more disengaged from the democratic process and many of those still engaged think that Brexit Trump and Scottish Independence or UKIP are the answer.
    Meanwhile the people continue to be fleeced of pension while those from L’Oréal continue on the gravy train …disgusting I despair.

    • Hi PrivateFraser

      There have been so many mistakes including the way that Lord Myners dealt with the Fred Goodwin pension. As to unfair treatment there is plenty of it about, today I was at a Public Meeting where the National Statistician spoke about inflation measurement. A member of one of the pensions bodies pointed out that the Bank of England had been involved in taking away RPI indexation for quite a few pensions but had kept it for itself for many years.

      As Ros Altman pointed out last year.

      ““The Bank of England scheme required employer contributions of well over 50% of salary for the year ending February 2016. It also pays all the administration and [pension protection fund] costs, on top of the employer contributions. Such costs would be ruinous for most private sector employers struggling to fix their defined benefit pension deficits.””

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