RBS loss foreshadows bleak investment bank results

LONDON (Reuters) - Royal Bank of Scotland's warning of a record loss, driven mainly by its investment bank, will likely foreshadow another round of grim results from European investment banks, analysts said.

RBS's investment bank, Global Banking and Markets (GBM), was hit by a string of problems, including a goodwill impairment charge of 15 billion to 20 billion pounds on RBS's purchase of Dutch rival ABN AMRO in 2007.

RBS will also take credit impairment losses of an estimated 6.5 billion to 7 billion pounds, with 3 billion of this in GBM.

"RBS's news made me more pessimistic on European banks. It's worrying how quickly things are deteriorating in corporate loan portfolios especially," said Andy Stimpson, a pan-European banking analyst at Keefe, Bruyette & Woods.

He said European banks' balance sheets were still not transparent enough to gauge the full extent of their problems.

RBS said on Monday that sharply deteriorating credit and market conditions in November and particularly December had hit the group, with GBM taking the brunt of the blow.

RBS's credit impairment losses include a provision of about 1 billion pounds relating to exposure to petrochemicals group LyondellBasell Industries, which has filed for bankruptcy protection for its U.S. business.

RBS will also write down about 8 billion pounds on its credit-market exposures, including structured credit vehicles such as collateralised debt obligations.

GBM revenue was squeezed by the bank's exposure to an alleged $50 billion (34.5 billion pound) fraud by Wall Street trader Bernard Madoff, which could lead to a potential loss of about 400 million pounds, as RBS indicated last month.

KITCHEN SINK

Deutsche Bank will report year-end results on February 5, followed by UBS on February 10 and Credit Suisse on February 11.

Dresdner Kleinwort analyst Stefan-Michael Stalmann said in a note on German and Swiss banks: "Investors should brace themselves for bad numbers, also keeping in mind that some banks may be tempted to kitchen-sink as much as possible into a ruined year 2008."

In a surprise profit warning last week, Deutsche Bank said it had racked up a loss of about 4.8 billion euros (4.4 billion pound) in the final three months of 2008 on dismal sales and trading business.

Barclays offered a more positive update when it said its 2008 profit would be well ahead of the 5.3 billion pounds consensus estimate of sell-side analysts, even after writedowns.

It rushed out the update after its shares plunged by a quarter on Friday.

Analysts warned against excessive optimism on UK banks.

"Barclays has significantly further to go in terms of recognising mark-to-market losses, especially on its leveraged loans, commercial real estate, monolines and other structured credits portfolios," said Panmure Gordon's Sandy Chen.

Dresdner Kleinwort analyst Folkert Jan Van Der Veer added: "The (UK) banks still have not fully recognised their losses."