February 24, 2011 / 12:17 AM / 9 years ago

RBS recovery undermined by Irish losses

LONDON (Reuters) - Royal Bank of Scotland’s high bad debt charges in Ireland and a drop in investment banking income overshadowed the bank’s return to profit in the final months of 2010.

A woman walks past the offices of the Royal Bank of Scotland (RBS) in the City of London, December 3, 2009. REUTERS/Luke MacGregor

Stephen Hester, chief executive of the partly nationalised bank, said on Thursday that his turnaround plan was ahead of target. But Hester also said political pressures, such as calls by politicians to curb bonuses, could hold back recovery efforts as the bank was used as a “political football.”

“It’s a tough thing for us, it can feel pretty beleaguered working at RBS with external and internal pressures, that’s one of the handicaps we work with,” Hester told reporters.

RBS, rescued with 45 billion pounds of taxpayers’ cash during the financial crisis, posted a loss of 1.1 billion pounds for 2010, largely driven by losses at its Ulster Bank arm.

Last year, it made a loss of 3.6 billion pounds.

The bank scraped back into a slight profit in the final months of 2010 but impairment losses during the fourth quarter rose to 930 million pounds from 782 million in the previous quarter.

Investors were also disappointed by a drop in profits at RBS’ lucrative investment banking arm.

“The situation in Ireland has had a painful effect on the bank’s numbers, whilst in line with many of its global peers the investment banking arm has failed to inspire,” said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers.

RBS shares were down 3.4 percent at 45.7 pence by 10:30 a.m., underperforming a slightly weaker European bank index and leaving the taxpayer sitting on a paper loss of more than 3 billion pounds.

The government owns an 83 percent stake in RBS, bought at an average price of around 50 pence.

Royal London Asset Management fund manager Jane Coffey said there was nothing in the RBS results to make her want to buy the stock, which she has avoided of late.

“There’s nothing inspiring in the results and I’m not particularly positive on the UK retail banking environment,” she said.

Lloyds shares were down 0.8 percent, while rivals Barclays

and HSBC also dropped around 1 percent.

NEGATIVE EFFECT

Britain plans to sell its stakes in RBS and Lloyds, but Hester said that was unlikely to start before the Independent Commission on Banking (ICB) - set up to examine a potential break-up of the UK’s top lenders — publishes its final report in September.

On Thursday, Qatari Prime Minister Sheikh Hamad bin Jassim bin Jabr al-Thani said that Qatar was open to buying stakes in both RBS and Lloyds. Hester said this matter was one for the British government to comment upon.

As a result of its government bailout, RBS was ordered by European regulators to dispose of a range of assets by 2013, including its insurance division.

RBS said preparations for the sale of its insurance arm were continuing, and that its overall restructuring programme was progressing well.

The “core” RBS business — what will be the new RBS once its restructuring is completed — made an operating profit of 7.4 billion pounds, delivering a return on equity of 13 percent.

But the “non-core” business, or assets that are being sold and run down, made a loss of 5.5 billion pounds.

The bank incurred other one-off charges, including a 1.1 billion pound charge for using the government’s asset insurance scheme.

RBS said it reduced non-core assets by 63 billion pounds to 138 billion during the year, however, ahead of target.

Revenues at Global Banking and Markets, the investment bank arm, dropped 28 percent on the year to 7.9 billion pounds, hit by a slowdown in capital markets activity in the second half.

Staff costs at GBM fell to 2.7 billion pounds from 2.9 billion, after it pledged to keep bonuses under 950 million pounds.

Average pay for its 18,700 GBM staff was down 11 percent to 144,012 pounds, although pay rose to 34 percent of revenue from 26 percent in 2009. Hester said he would take up his 2 million pound bonus.

Losses on Irish bad loans almost doubled to 1.2 billion pounds last year after jumping to 376 million in the fourth quarter, up 31 percent from the previous three months.

It warned losses there would remain high in the first half of this year.

Exane BNP Paribas Ian Gordon said he did not expect Ulster Bank to return to profit before 2014.

(additional reporting by Paul Hoskins)

Editing by Jane Merriman

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