Last time we checked (Forbes this time last year), with around $3.8 trillion of assets, RBS was the biggest company in the world.
But with profits for 2008 coming in at £80m, we think it might also qualify as the worst. That’s a return on assets of 0.004 per cent.
Some interesting tidbits from the bank’s 2008 results, out today:
…profits were more than wiped out by credit and market losses in concentrated areas around proprietary trading, structured credit and counterparty exposures. Over 50% of these losses pertained to ABN AMRO-originated portfolios.
We will create a “Non-Core” Division of RBS during Q2, separately managed, but within the existing legal structures of the Group and matrix-managed to donating Divisions where necessary. This Division will have approximately £240 billion of third party assets, £145 billion of derivative balances and £155 billion of risk-weighted assets, comprising individual assets, portfolios and businesses of the Group that we intend to run off or dispose of during the next 3-5 years. The specific timetable will vary in each case but will be as fast as we judge consistent with optimising shareholder value and risk. Approximately 90% of the Non-Core Division will consist of GBM assets, primarily linked to proprietary portfolios, excess risk concentrations and illiquid ‘originate and hold’ asset portfolios. The rest of the Non-Core Division will be risk concentrations, ‘out of footprint’ assets and smaller, less advantaged businesses within our Regional Markets activities across the world.
There’s also going to be a lot of sell-offs:
… it is intended that our representation in approximately 36 of the 54 countries weoperate in around the world will be significantly reduced or sold.
And cost-cutting:
In addition to eliminating expenses associated with the Non-Core Division, we have launched a restructuring plan to make efficiency savings across the Group, aimed at achieving run-rate reductions by 2011 of greater than £2.5 billion (16% of 2008 cost base) at constant exchange rates. This will involve a wide range of re-engineering and other measures and, regrettably, reductions in employment.
Some other highlights:
Total assets of £2,401.7 billion at 31 December 2008 were up £560.8 billion, 30%, compared with 31 December 2007.
Not what you might expect in a severe downturn. While RBS has been desperately shrinking some lending commitments (loans and advances to other banks down £58bn, repos down £60bn) others are involuntarily increasing. Corporate clients, of course, are drawing down on long-held credit lines, loan arrangements, backstops and revolvers that were written cheaply in the good times without the expectation that things could ever get this bad. Desperate for cash, corporate clients are bleeding RBS dry, which is a nicely ironic turn.
Add to this, of course, a surge in the bank’s risk weighted assets:
Risk-weighted assets totalled £577.8 billion at 31 December 2008, an increase of 19% compared with end-2007 RWAs restated on a Basel II basis, or 18% from the Basel I RWA figure reported for 2007. The growth in RWAs was largely related to movements in exchange rates and the procyclical nature of the Basel II regulatory regime.
…which will be further pressuring the RBS balance sheet: tying up capital in reserves. This point being the main driver behind the need for RBS to use the government’s asset protection scheme. With around £300bn of assets being insured under it, RBS hopes to dramatically reduce its onerous capital requirements.
Also in the gimmicks and tricks file:
Following the amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ in October 2008, the Group has reclassified out of the held-for-trading category certain loans and debt securities, for which no active market existed in 2008, and which the Group intends to hold for the foreseeable future. As a result of the reclassification, income for the second half of 2008 was £5.8 billion higher than would have been the case had the reclassification not taken place; this was offset by impairment losses of £466 million on debt securities reclassified as available-for-sale. In addition, £2.1 billion was charged to available-for-sale reserve reflecting a reduction in the fair value of these securities.
Around £1.3bn was gained through the revaluation of fair value on RBS own issued debt (£843m) and through the sale of an investment in Tesco personal finance (£442m).
Actual tax (credit)/charge: (£1,280m)
Related links:
RBS taps Treasury for a further £13bn – FT
State to insure £300bn of RBS assets – FT
Goodwin’s undoing – FT