Crisis-stricken Royal Bank of Scotland took fresh help from the government on Monday and announced that its losses for last year could reach £28 billion (US$41.3 billion) — the biggest ever for a British corporation.
The government raised its stake in RBS from 58 percent to 70 percent in a deal which will save the company 600 million pounds a year in interest charges, but the agreement ignited fears in the market that the bank could soon be fully nationalized. RBS battered shares lost two-thirds of their value in on Monday’s trading.
“Isn’t this nationalization in all but name?” said Vincent Cable, a senior lawmaker from the Liberal Democrat party.
British Prime Minister Gordon Brown, who separately announced a new round of bailouts for Britain’s troubled banks, scolded RBS for what he called irresponsible risk-taking on mortgage-related securities in the US and the expensive takeover of Dutch bank ABN Amro.
The bank said it expected to mark down the value of past acquisitions including the ABN Amro deal by £15 billion to £20 billion, plus posting other losses up to £8 billion after a dismal fourth quarter.
The largest full-year loss previously reported by a British corporation was £15 billion, by Vodafone in 2006.
Royal Bank of Scotland shares, which traded at around £3 a year ago, finished the day down 67 percent at £0.116.
The bank said profits in retail and commercial business in Britain had been wiped out by losses in its global banking and markets division.
The bank said it had reached an agreement with the government, which took a 58 percent stake in the first round of bank bailouts, to convert £5 billion in preference shares held by the government to ordinary shares, saving RBS having to pay some £600 million a year in dividends.
“Yes, I am angry at the Royal Bank of Scotland and what happened,” Brown said at a news conference where he announced a new insurance program to cushion British banks’ exposure to bad assets.
“Almost all their losses are in the subprime markets in America and related to the acquisition of the bank ABN Amro. And these are irresponsible risks which were taken by a bank with people’s money in the United Kingdom,” Brown said.
In 2007 RBS led a consortium including Belgian-Dutch group Fortis and Spain’s Banco Santander in a takeover of ABN Amro at a cost of euro 70.5 billion.
In April, RBS launched a £12 billion rights issue to raise more capital from investors, the largest in British corporate history. Fred Goodwin, who directed the bank’s aggressive expansion, resigned in November last year when the government took a 58 percent stake in RBS in a first round of bailouts.
“The dislocation of credit markets and the global economic downturn continue to hit RBS hard, as with many other banks,” RBS chief executive Stephen Hester said.
“Significant uncertainties and risks inevitably remain. In this context, the support we are receiving from government benefits all our stakeholders and enables us to provide more customer support in return,” he added.