The Royal Bank of Scotland yesterday reported a net loss of £24.1 billion (US$34 billion) last year, the largest annual shortfall ever recorded by a British company, and unveiled a massive restructuring program that will hive off many of its international businesses.
RBS, which is nearly 70 percent owned by the British government after a massive bailout, said it would sell off a large part of its assets, withdraw or reduce operations in 36 countries and refocus its activities on the domestic market.
Britain’s second-largest bank also said it will offload £325 billion of toxic assets into a government insurance program.
RBS’ huge annual net loss after minority interests and earnings from discontinued operations, compares with a £7.3 billion profit in 2007.
The pretax loss was significantly wider at £40.67 billion, compared with a £9.83 billion profit the previous year.
The bank’s revenue fell 15 percent to £25.87 billion.
RBS chairman Philip Hampton blamed the massive loss on the “unprecedented turbulence” in financial markets and deteriorating conditions around the world.
“We owe our continued independence to the UK government and taxpayers and we are very thankful for their support,” Hampton said.
RBS chief executive Stephen Hester — who replaced Fred Goodwin after he resigned in the wake of the bank’s financial downfall — said he was confident the restructuring and the government assistance would return RBS to “standalone strength.”
The bank said it planned to shift £240 billion, or 20 percent, of its funded assets to a non-core division. Those assets would then be disposed of or run down over the next three to five years. All assets kept in the core division will be subjected to five key tests.
The restructuring will leave the bank centered on Britain, with smaller, more focused global operations.
RBS’ participation with another £325 billion in the government’s asset protection program was widely anticipated, but analysts had expected it to seek guarantees for only about £200 billion in assets.
Under plans outlined by British Chancellor of the Exchequer Alistair Darling last month, the government will charge a fee to guarantee around 90 percent of a bank’s potential losses on assets, such as mortgage-backed securities and consumer loans.
The plan should increase the capital strength of banks by reducing the risky assets they hold, to support a return to lending.
Darling defended London’s renewed large-scale intervention to secure RBS’s survival yesterday.
“The costs are colossal, but the costs of not doing it are also colossal,” he said in a BBC interview, citing the failure of US investment bank Lehman Brothers as an example of the consequences of bank collapse.
He said the rescue plan for RBS came “close to full nationalization,” but stressed that the British government believed the “insurance model” to be preferable.
The government’s share of the bank could rise to 80 percent with the new measures announced yesterday.
RBS’ downfall in the wake of the global credit squeeze has been swift.
Just last July, The Banker magazine rated it as one of the world’s top banks based on its tier 1 capital.