First-half loss of £1.04 billion for RBS

The Royal Bank of Scotland (RBS) posted a loss attributable to shareholders of £1.04 billion for the first half of 2009 on a pro forma basis, due to £7.5 billion in impairments charges.

Approximately 70% of the impairment costs arose in the bank's non-core division, which was set up in February to house and wind down its toxic assets over a three- to five-year period. Without impairment losses, the bank would have made an operating profit of £4.17 billion, it said.

The non-core division recorded an operating loss of £9.65 billion as a result of £4.2 billion of credit market and other writedowns, including £1.55 billion of monoline losses and a £996 million loss on the tightening of its credit spreads, and impairments of £5.3 billion.

Impairment charges from the firm's global banking and markets (GBM) business made up the bulk of the charges at £2.71 billion. The firm's UK corporate banking accounted for £986 million and the US retail and commercial business made up £340 million.

In the bank's core division, GBM generated the greatest profits, especially in its rates and currencies businesses, as well as equities and equity derivatives. It posted a £4.87 billion profit compared with £1.12 billion in the first half of 2008. The core bank as a whole made an operating profit of £6.3 billion.

Other profitable businesses in the division included the firm's global transaction services business, which made a profit of £496 million compared with £493 million in the year prior. The banks' retail and commercial banking businesses were also profitable.

The core division still underwent impairments totalling £2.18 billion, however. The greatest impairments came in the UK retail banking business (£824 million), the UK corporate banking division (£551 million) and GBM (£237 million).

Going forward, the bank expects to face further difficulties. "While a degree of stabilisation has occurred in financial markets, the impact of economic recession continues to feed through into the group's credit portfolios," the report said. On June 30, non-performing and potential problem loans totalled £31 billion, representing an increase of 246% from the same date last year.

The bank has undergone a considerable restructuring effort in recent months, and has reduced its total assets by £574 billion, or 26%, to £1,644 billion. In addition, the bank sold its 50% stake in Linea Directa Aseguradora for €426 million, disposed of its 4.26% equity stake in Bank of China for a net consideration of £1.6 billion, and has reached an agreement with Australia and New Zealand Banking Group for the sale of a number of its Asian assets.

The bank issued its results on a pro forma rather than statutory basis to include only those business units of ABN Amro that it will retain.

RBS was not the only institution to announce its results today. Fannie Mae reported a $14.8 billion second-quarter loss driven by $18.8 billion of credit-related expenses, which included provisions for credit losses plus foreclosed property expenses. In the first quarter the firm lost $23.2 billion.

Fannie Mae said it experienced greater numbers of delinquency and defaults in the second quarter, while total nonperforming loans in the firm's guaranty book rose to $171 billion from $144.9 billion in the first quarter. In addition, the firm needed a $19 billion senior preferred stock purchase agreement from the US Treasury to bridge a net worth deficit of $10.6 billion, which if unresolved would have triggered mandatory receivership.

See also: RBS loses chief risk officer
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