RBS Reports Second Biggest Loss In Banking History

Royal Bank of Scotland has unveiled a huge fall in profits during the first six months of 2008.

The pre-tax loss of £691m is the second biggest in UK banking history.

The banking group which owns NatWest, Direct Line and Coutts said it was hit by £5.9bn of write-downs after the credit crunch had a negative impact on the value of its mortgages and assets.

The results come as a crushing blow as the bank made a profit of £5 billion during the same period last year.

However, some analysts had predicted that the UK's second biggest bank could see a loss of between £1.2bn and £1.7bn.

First half highlights also revealed an underlying profit level of £5.1bn - down 3%.

The Group Chief Executive, Sir Fred Goodwin, said: "The Group's results for the first half of 2008 have been seriously affected by the impact of unprecedented market conditions on a number of our business lines.

"It has been a chastening experience and reporting a pre-tax loss of £691m is something I and my colleagues regret very much.

Mr Goodwin added that a good performance had been met in the UK Retail & Commercial Banking, which reinforced the group's leading market positions with, for example, 12% growth in personal savings and 10% in mortgage business.

"We reduced our leveraged finance portfolio from £14.5bn at the end of 2007 to £10.8bn at 30 June, and in July sold another £1.25bn of leveraged loans."

Mr Goodwin added: "The difficult conditions in the financial markets look set to be compounded by a deteriorating economic outlook, with consensus forecasts pointing to slow growth in many countries."

RBS has sold shares worth £12bn in a rights' issue that was strongly supported by shareholders, who agreed to buy some 95% of the stock on offer.

The rights issue proved to be the biggest in UK corporate history and the firm said investors would take up £5.8bn new shares at a value of 200 pence each.

RBS shares have more than halved in value over the past year, including a 25% slump since the rights issue was announced in April.

Banking analyst Ralph Silva says the firm's Chairman, Sir Tom McKillop could be forced out as a result of the loss.

Mr Silva told BBC Radio 4's Today programme that "maybe the chairman, Sir Tom McKillop, probably will be the one that will have to fall on his sword".

Mr Goodwin concluded on a more optimistic note that "we now have many more new products and services to offer to our enlarged customer base, and these provide us with opportunities for income growth".

Meanwhile, Lloyds TSB, Halifax Bank of Scotland and Alliance & Leicester have reported profits drops of 70% and 99% respectively.

(DS)