Here’s a curiosity.
In RBS’s interim statement, released on Friday, Stephen Hester, CEO of the bank shortly to be 84 per cent owned by the British taxpayer, makes a commitment to transparency. As he states in his third-quarter commentary (our emphasis):
Today our results show strong and even growing customer franchises and the majority of our businesses operating without surprises in the face of enormous pressures and change. They show progress in risk reduction and improved liquidity and funding strength. They show progress in efficiency. They show the decline in net interest margin arrested. Behind these results lie intense activity throughout the Bank, tough decisions being made, investments in the future taking place and a determination to make good on the recovery targets we published in August as part of our five year plan.
However, we owe it to everyone to be realistic and transparent. Economic recovery is likely to be slow and the pain of economic adjustment will take years to subside. Our business will reflect these issues. Profitability in our core businesses will recover fully only when our own actions are also complemented by more normal interest rates and bad debt experience. The excess credit exposures in our Non-Core Division will also take time to work down with losses along the way. We further have to adjust our business and manage the changes required by the EC and will publish revised plans in that regard in February. Finally, regulatory pressures on all banks will continue to increase the cost of doing business and require higher margins and more capital than previously.
Which presumably is why we now find no less than 173 pages worth of information in the bank’s interim statement and additional slide presentations. Lovely.
Except, there are a few issues.
First, what exactly is this bit — from the bank’s Global Banking and Markets division?
Impairments of £272 million for the quarter included a large individual failure. Year to date impairments were £510 million, representing 0.48% of loans and advances to customers compared with 0.02% in the prior year.
We also note that RBS provides no further detail on the contributions of two of the four main businesses it is now planning to divest, namely RBS Sempra Commodities and Global Merchant Services.
Which is unusual given that in the case of Sempra, the bank provided an income contribution figure for the first quarter (£223m) and the first half (£467m). It was the same for Merchant Services — £322m in the first half .
Friday’s interims simply restate figures up to the end of June, as rehashed from the table showing operating profits in the period provided on Tuesday.
Of course, when you look at the contribution of commodities to RBS’s income in the third quarter you’ll see it almost halved, falling to £120m from £239m — meaning it would have been interesting to see just how well the joint venture did perform.
However, we’re definitely not suggesting that Sempra — which RBS took on in April 2008 — is any way connected to the “individual failure” flagged up earlier because the one thing RBS will tell us is that the mystery impairment does not relate to that particular division.
The only other new commentary on Sempra by name was the following:
Expenses remain tightly controlled, with total expenses for the quarter up 2% on 2Q09 and staff costs flat. Year to date expenses are up 9% on prior year, reflecting the inclusion of Sempra for the full nine months in 2009 and the impact of adverse exchange rate movements, partly offset by restructuring and efficiency benefits.
UPDATE 14:41 GMT – The new transparent RBS has got in touch to tell us that ‘commodities’ is equal to Sempra, meaning the bank was not being evasive, just confusing by classifying things differently and failing to update their “income statement dimensions” for the businesses currently identified for disposal with numbers up to September.
Global Merchant Services, meanwhile, is the same as ‘merchant acquiring’ and the interims show it made £131m in the latest quarter.
An explanatory note, however, would have been nice.
You see, we know Sempra is RBS’ commodity division, but you can never be sure that other parts of the business are not engaging in their own p&l commodity-related trades.
As for the “large individual failure”, RBS said they would love to be more transparent about it, but simply can’t due to client confidentiality.
So there you have it. All sorted.
Related link:
Royal Bank hanged, drawn and quartered – FT Alphaville