Bank reveals £206m write down.
RBS’ share price plunged 6.44% today after the bank signalled it would make a loss this financial year and revealed further debt charges and write-downs totalling £206m in the third quarter.
A spokesperson denied the losses would put RBS in a position to hasten and settle on talks relating to the sale of its insurance arm, which includes Direct Line and Churchill insurance business. “We are not in that position at all,” said Linda Harper of RBS. “We are raising £20bn in capital and we’ve said all along that it’s [RBSI] an asset for potential disposal but we’ve always said we will sell if the price is right and that continues to be the case.”
Harper refused to comment on potential buyers but said the bank was in discussions with a small number of parties and that RBS was considering offers for the entire insurance business or stakes in it.
A source believes that global private equity firm CVC or Swiss Re are interested parties but would not rule out the possibility that RBS would keep hold of its insurance arm. Harper said discussions on RBSI’s fate would be concluded before the bank publishes end of year results in February or March 2009.
RBS plans to get itself out of trouble through raising £20bn of capital by placing an open offer of £15bn new ordinary shares to investors, underwritten by the government, and selling £5bn preference shares to HM Treasury.
In a BBC interview incoming RBS chief executive Stephen Hester admitted profits would be difficult to achieve this year. He said RBS was in this position because it had overextended itself at the peak of the bull market through leverage and the amount of debt on its balance sheets.
“Our expectation is that RBS will book a full year loss for 2008; we also maintain our 40p mid-2009 share price target,” said Sandy Chen, analyst at Panmure Gordon & Co.
Hester added sharp restructuring was needed to ensure that the strength of the banks underlying business could shine through. “Although he has not formally taken up his post at RBS, Stephen Hester appears to have begun sorting things out at RBS in ways that remind us of when he joined Abbey National as financial director in 2003,” added Chen. “We would not be surprised if he set up a similar good bank/bad bank structure; we think this would be received well, because it would enable investors to differentiate between operating performance of the good bank, whilst being able to discount the value of the bad bank.”