Confusion reigned regarding RBS write-downs early on Thursday. Perhaps because they didn’t feel the need to add them up or break them down neatly for those reading their 66-page results statement. And didn’t deem it worthwhile to reiterate what was said back at the December pre-close.
Why make it so difficult for everyone? RBS shares headed almost 3 per cent lower, despite the rosy headline profit numbers, before an aggressive turnaround saw the shares rally sharply, up 2.7 per cent.
The total write-down related to subprime and credit going through the RBS P&L amounts to £1.6bn. The jump from the December figures is primarily those pesky monolines. RBS has marked down its positions by £456m related to some £2.5bn in guarantees purchased from the bond insurers.
Into the mix goes £950m of writedowns related to exposure to MBS and CDOs, £250m on leveraged finance positions and £150m from the first half. Back in December, those writedowns on leveraged finance were offset by a £250m reduction in the value of RBS’s own debt on its books.
And what a nice suprise. As spreads have blown out, that debt seems to be down another £123m helping to offset losses. Then there’s the £950m gain RBS made on the sale of Southern Water. So net of all bits and pieces, the hit to profit was £484m.
RBS said on Thursday that writedowns at ABN have risen to £978m as the valuation of assets at the Dutch bank is brought into line with that at RBS. That’s against the £300m flagged for the second half back in December. The large difference appears to be that the £300m was for just US mortgage-related assets, whereas the larger figure brings all ABN instruments into line with RBS’s valuation. Worth noting though that RBS has marked down ABN’s high grade CDOs by a further 10 per cent since December, and don’t appeared to have made a similar increased mark on their own exposure.
One point of continuing interest is those disappearing LBO writedowns – where US banks look to be slashing the value of leveraged loan positions they’re stuck with more drastically than their European peers. RBS has made no move on its £250m in leveraged loan provisions since December, which is a writedown on their net exposure at the end of the year of £8.7bn, or an average of 95 per cent mark. But the markets for buyout debt derivatives, while off their lows of earlier this month, do indicate that valuations have deteriorated since the back end of last year. Note the US LCDX index right.
Sir Fred Goodwin, chief executive, professed himself “quite happy” with their positions, pointing to the heterogenous nature of such loans.
A common refrain. Funny no-one seems to be owning up to being stuck with the bad apples in this heterogenous barrel.
Related links
RBS reveals further £450m losses from turmoil – FT.com
UK bank earnings – FT.com