Britains Banking Burden Grows – US-FOREX.US
While most European banks have been celebrating a second-quarter turnaround in investment-banking profits, Royal Bank of Scotland could only look on enviously on Friday. The state-controlled bank reported a whopping 1.7 billion loss for the first six months of 2009, driven by the depressed British economy and deteriorating loan values, and said it would not see a turnaround in results until at least 2011. And with the British government’s “other” part-nationalized lender, Lloyds Banking Group
, also recovering from a six-month loss, don’t expect the state to step out of the way anytime soon. Her Majesty currently owns 70% of RBS and 43% of Lloyds, with both stakes set to rise as a result of the planned “asset protection scheme”-a government-sponsored proposal to insure risky, unwanted assets. The majority of the 13.4 billion in impairments taken by RBS in the first half of the year were on these so-called “toxic” assets. Shares of RBS
slumped 12.9%, or 6.89 pence , to 46.56 pence , during morning trading in London. The loss was worse than expected, but so was the outlook: Chief Executive Stephen Hester warned that economic uncertainty meant results might not substantially improve until 2011, while his turnaround forecasts at the bank looked ahead to 2013.”Hester’s cautious outlook on the U.K. economy is justified,” said Irfan Younus, an analyst with NCB, who rated RBS “reduce.” He said the bank’s share price relative to its net asset value-assuming the asset-insurance scheme went ahead as agreed-looked “too high,” though he recommended selling Lloyds Banking Group first.On Thursday, the Bank of England said it would pump an extra 50 billion pounds into the economy, a higher than expected sum. The expansion represented a “reality check” after hopeful data pointed to a turnaround in Britain’s economy. Although Lloyds and RBS have both suffered from souring loans from corporate and retail clients, the pressures on management are slightly different. RBC Capital Markets analyst Hank Calenti said it was a “tale of two CEOs”: Lloyds’ Eric Daniels was trying to soothe market fears and possibly save his job after leading the bank into its disastrous acquisition of rival HBOS last year, while RBS’ Hester-who only joined the bank after it was bailed out by the government-was downplaying expectations in the hope of a share-price rally later on in his career.