RBS on Friday reported a £857m loss for the first quarter of 2009. Not exactly anything to shout home about.
Shares in the titan responded initially with a rise to 46p, up 4.8p, 11.54 per cent.
To put things into perspective, the Q1 2009 numbers are worse than they were in Q1 2008. And of course, RBS, like Barclays and Lloyds Banking Group, yet expects significant pressure on margins in the months to come.
The RBS results in full – voluminous and confusing – are available here.
We have a penchant here on FT Alphaville for car-crash journalism, which is why our eyes were naturally drawn to this line high up in RBS’ headline numbers:
As if impairment losses and writedowns of £5bn weren’t bad enough, footnote 3 reveals that they exclude trading asset writedowns of £755m. But that is a net figure. Dig further into the specific numbers at Global Banking and Markets (GBM) and you find that “the asset losses were partly offset by gains on the fair value of own debt of £647 million.”The losses were primarily taken, says the GBM detail, on credit trading – and special reference is made to revaluations of credit insurance provided by CDPCs (which makes us wonder about the readacross to Barclays, where, as of yesterday, credit valuation adjustment on CDPC-provided hedges was minimal).
It’s also worth noting that many of those £5bn headline impairment losses are also being taken on securities that RBS had already reclassified out of its trading book specifically in order to try and avoid severe mark-to-market markdowns.
These are not healthy numbers. It wouldn’t really be stretching it, in fact, to say that they’re as bad as anything coming out of RBS in the past 12 months.
The risk of a banking collapse may be over, but the banking crisis is not.
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As ever, a turn to the appendices provides gory minutae. Just like Barclays, RBS is dependent upon hedges from monolines and CDPCs to keep its credit exposures in check. The difference being one of magnitude: RBS gross’ exposures are much larger than Barclays’.
This table summarises RBS’ current exposures to asset-backed securities (click to enlarge):
Though huge, the numbers are net of hedges. And RBS has a lot of hedges with CDPCs and monolines. Take the £5.6bn of CDOs specified above, for example. The gross CDO position is actually £10bn.
A summary of RBS’ monoline and CDPC hedges is provided by the two tables extracted from the results below:
Monolines:
Subtracting then the gross exposure from the CVA, we get a monoline risk exposure for RBS of £4.45bn
CDPC:
Subtracting the gross exposure from the CVA gets a CDPC risk exposure for RBS of £2.8bn.
Both of those figures, of course, work on accepting the fair value assumptions currently given by RBS. Monoline exposures will increase in the event that the fair value of RBS’ ABS continues to decrease. The current fair value of assets protected by CDPCs and monolines on RBS’ balance sheet is just over £35bn (with a notional monoline/CDPC-protected value of £52.7bn).
All quite sobering.
Update @14:47 BST: As noted in the comments below, to RBS’ credit, their CVA adjustments on monoline and CDPC exposures have been far more conservative than those taken by Barclays. Although the gross numbers might be larger, the risks are, to a much greater extent, already factored in to RBS’ figures. Whereas Barclays is currently discounting its monoline insurance by around 76 per cent of notional positions, RBS is discounting its monoline insurance at 35 per cent.