UnconVinced

3 Aug 2012 By George Hay Follow @gfhay

Weak domestic growth and redressing mis-selling and technical glitches pushed the UK bank further into the red in H1. Though rate-rigging liabilities are a concern, RBS’s shift from shaky to secure bank is almost complete. Strengthening the state’s grip would be a costly error.

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Royal Bank of Scotland on Aug. 3 revealed overall income for the six months to June 30 of 13.6 billion pounds, down 15 percent on the same period in 2011.
The UK bank made an overall net loss in the first half of 2 billion pounds, compared to a loss of 1.4 billon pounds in the first half of 2011. This included a 3 billion pound accounting charge mostly due to narrowing spreads on the bank’s own debt, a further 260 million pound provision for the mis-selling of mortgage insurance, a 125 million pound provision for customer redress following technical problems with RBS’s payment systems in the second quarter, and a 50 million pound provision for the mis-selling of interest rate swaps to small businesses.
RBS has commissioned Clifford Chance to investigate the failure of its systems. Along with PWC and IBM, they have delivered a report which was presented to the bank’s board earlier this week and will be disclosed in the third quarter.
First-half income in RBS’s “core” ongoing operations fell eight percent to 13.3 billion pounds year-on-year. Core return on equity was 10.2 percent.
RBS has now completed 72 percent of its planned 258 billion pound deleveraging of non-core assets. Its fully loaded core Tier 1 capital ratio under Basel III reforms is estimated to be between 9 and 9.5 percent at the end of 2013.
The bank said it had yet to make an accrual for potential fines pertaining to regulatory probes into manipulation of the London Interbank Offered Rate (Libor). RBS has already dismissed four traders in connection with the investigation.
RBS is also in ongoing talks with UK regulators regarding its exit from the Asset Protection Scheme. The benefit to the bank’s risk-weighted assets from the government insuring toxic assets has reduced from 159 billion pounds in 2008 to 53 billion pounds now. Discussions are ongoing over whether to replace an 8 billion pound slug of contingent capital held by the UK government.
At 0830 GMT, RBS shares were trading at 214 pence, up 4.5 percent.

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