Pressure on as Royal Bank of Scotland to sell assets as losses deepen
The bank said it planned to sell a stake in the Citizens Financial Group, the US lender it bought in 1988, through an initial public offering in two years. It also said it would continue to reduce its investment banking operations by cutting risky assets and eliminating jobs. The moves are intended to help bolster capital and refocus operations, part of a multi-year turnaround effort initiated by Stephen Hester, the bank's chief executive.
Royal Bank of Scotland "is four years into its recovery plan, and good progress has been made", Mr Hester said. "We are a much smaller, more focused and stronger bank. Our target is for 2013 to be the last big year of restructuring."
Like many rivals, Royal Bank of Scotland is struggling with the legacy of the financial crisis and legal issues. On Thursday, it reported a bigger than expected loss, tied partly to its legal troubles.
The bank, in which the British government holds an 82 per cent stake after a bailout in 2008, posted a net loss of £5.97 billion in 2012, much larger than the £2 billion loss recorded in 2011. Analysts had expected a loss of £5.1 billion.
The rising losses reflect the bank's regulatory and legal problems.
Royal Bank of Scotland said that it had set aside an additional £1.1 billion to compensate clients to whom it had improperly sold insurance products, bringing the total provision to £2.2 billion. The bank, which is based in Edinburgh, agreed this year to pay $US612 million ($A597 million) to British and US authorities to settle accusations of rate-rigging.
Eager to get back some of the £45.5 billion it invested in Royal Bank of Scotland, the British government recently increased pressure on the bank's management to expedite the reorganisation.
Frequently Asked Questions about this Article…
RBS is selling assets and reducing its investment banking arm to appease regulators and its biggest shareholder (the British government), bolster capital, and refocus operations. These moves are part of a multi‑year turnaround started by CEO Stephen Hester aimed at strengthening the bank after substantial losses and legal problems.
RBS said it plans to sell a stake in Citizens Financial Group—the US lender it bought in 1988—via an initial public offering (IPO) in about two years. The article does not provide further details on the size of the stake or exact IPO timing beyond that two‑year plan.
RBS posted a net loss of £5.97 billion in 2012, up from a £2 billion loss in 2011. The larger‑than‑expected loss (analysts had forecast about £5.1 billion) was tied in part to regulatory and legal troubles, which increased provisions and penalties.
After the 2008 bailout the British government holds an 82% stake in RBS. That large ownership means the government is exerting pressure on management to speed the reorganisation so it can recover some of the £45.5 billion it invested—an important dynamic for shareholders and market observers.
RBS set aside an additional £1.1 billion to compensate clients who were improperly sold insurance products, bringing the total provision for that issue to £2.2 billion. It also agreed to pay US$612 million to British and US authorities to settle accusations of rate‑rigging.
CEO Stephen Hester said the bank is four years into its recovery plan and is now 'smaller, more focused and stronger.' He indicated the target is for 2013 to be the last big year of restructuring as part of the multi‑year turnaround effort.
According to the company, reducing risky assets and eliminating jobs are intended to lower risk, reduce costs and help bolster capital. These actions are part of the bank's strategy to refocus operations and improve balance‑sheet strength following heavy losses.
The article shows RBS is in an active restructuring phase—selling assets (including a planned Citizens stake IPO), cutting risky businesses, and absorbing legal costs—which has driven recent losses. For everyday investors, the key points are that the bank is aiming to strengthen capital and reduce risks, while the British government’s large stake increases political pressure to speed recovery. The article does not provide investment advice or specific outcomes for shareholders.
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