Tag Archives: HBOS

RBS (The Royal Bank of Scotland ) Has Record Loss Of £28 billion

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After hearing the news that the Halifax Bank of Scotland (HBOS) is proving to be the Lloyd’s Banking Group Albatross, you might not be surprised to see that the other UK banking shoe is falling, if you don’t mind the mixed metaphor. 

We now see that RBS is to sell off £300bn worth of assets.

RBS (RBS) is set to embark on a major restructure which will see it sell off at least 20% of its business worth around £300 billion.  The bank is due to announce its full-year results on Thursday and is expected to report a £28 billion loss – setting a record in UK corporate history.  Newly-appointed chief executive, Stephen Hester, is to unveil details of the plans this week, which will also see the bank split into a “good bank” and “bad bank”.

RBS is almost 70% owned by the taxpayer and received an injection of £20 billion last autumn to prevent it from collapse.

It is no surprise to see that the UK PM Gordon Brown calls for a return to prudent banking.

Prime Minister Gordon Brown called on Sunday for a return to traditional savings and mortgage banking in Britain as he prepares to insure banks against billions of pounds of toxic assets. He has asked the Financial Services Authority watchdog to look into how it should control new mortgages for more than 100 percent of a home’s value.

Brown’s Labour government is working out the details of a scheme in which banks including Royal Bank of Scotland and Lloyds would put billions of pounds of troubled assets into a structure that will ensure they are only liable for a proportion of any losses. The government hopes the insurance scheme will give banks the confidence they need to reopen lending lines frozen by the credit crisis.

One can only hope that the very expensive recent banking lessons both in the UK and the USA will bring in an entirely different banking culture around the world.

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Halifax Bank of Scotland (HBOS), the Lloyd’s Banking Group Albatross

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As far as the title goes it should be clear that the word albatross here is not following its American usage as a term for a double eagle, or 3-under par on any one golf hole.  Rather we intend the British usage where it means an encumbrance, or a wearisome burden as in Samuel Taylor Coleridge’s poem, The Rime of the Ancient Mariner.

This blog was not intended as only a record of the gyrations of the UK banking meltdown.  However today’s headline almost passes belief.  Pressure on Brown as Lloyds ‘to lose £26bn’.

LLOYDS Banking Group could suffer additional losses of £16 billion, analysts warned as they downgraded the firm’s credit rating. The withdrawal of the triple-A rating by Moody’s Investor Services follows the banking group’s profit warning of a £10 billion loss.  But according to analysts, Friday’s predictions, blamed on the risky acquisition of Halifax Bank of Scotland (HBOS) by Lloyds, will be just the beginning of even deeper losses during the downturn.

This puts into even greater contrast the kind of headline we all saw only six days ago: Lloyds chief executive Eric Daniels ‘won’t take bonus’ for last year.

Lloyds Banking Group is 43% owned by the taxpayer and his decision emerged hours before he and other bank chiefs were due to face a grilling from MPs.  Tory MP Michael Fallon, vice-chairman of the all-party Commons Treasury committee, stressed that publicly owned banks should cut back dramatically on the special payments.

Further Stop Press Item: Chancellor sets RBS bonus limits

Chancellor Alistair Darling has announced that the government is limiting bonuses paid out to staff by the Royal Bank of Scotland (RBS).  Mr Darling said bonuses at RBS would be cut from the £2.5bn paid last year to £340m. There would be “no reward for people who have failed,” he added.  And bonuses will no longer be paid in cash, but in shares.  The bank would pay “the minimum it can with regard to its legal obligations,” the chancellor said, referring to the fact that some employees are contractually obliged to receive bonuses.

Alistair Darling was quoted as saying, “What you’re now seeing is a cultural change”.  Hopefully this is the start of much more realism in the way the UK Government is tackling this whole sorry mess.

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UK Banking Meltdown Consequences

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It is hardly surprising, given the UK banking meltdown to see headlines such as Era of big bonuses for bankers to end as Lloyds attracts scrutiny.

Ministers joined ranks in condemnation of the payments.  David Cameron, the Tory leader, proposed that bonuses in taxpayer-funded banks be capped at £2,000.  Sources close to the Prime Minister said that a cap on such payments could not be ruled out.

The pressure for new curbs increased after reports that Lloyds planned to pay out £120million in bonuses for last year. On Friday the bank gave warning that its subsidiary HBOS had lost £10billion – £1.6billion more than expected.

That is only one of the consequences of this devastating situation.  More importantly, questions remain over who carries the can for the banking meltdown

How much did the bankers know about the impending crisis and how much advice did they ignore as their businesses headed to the edge of a cliff.

Paul Moore, former head of regulatory risk at HBOS, alleged that he had been sacked, threatened and gagged four years ago after raising concerns that HBOS was growing too fast. He claimed Sir James Crosby, head of HBOS, had dismissed him and that it was “his decision and his alone”. Moore sued HBOS for unfair dismissal under the whistle blowing legislation and the bank settled while subjecting him to a gagging order.

The article goes on to explore how well the Financial Services Authority (FSA) has been fulfilling its mandate.  The culture there is too relaxed and chummy.  There is a greater need for ‘challenge’.  Competent people must be in place and the right questions must be asked and answered.  Truth and consequences must be the new order as a result of this horrendous banking meltdown.

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Banking As Usual

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The Big Banks in the US would certainly like to pretend it is Banking as usual.  As President Barack Obama pointed out on ABC Nightline there is a Banking Crisis: We Can’t “Prolong The Agony”.   He pointed out that a rip-off-the-bandaid approach will be necessary in the process of restoring financial normalcy.  It will require some hard choices and introspection on Wall Street

Meanwhile Bank CEOs are assuring Congress: ‘We are lending’.

At a closely-watched hearing before the House Financial Services Committee, CEOs from such embattled firms as Citigroup and Bank of America defended their actions since taking hold of $165 billion last fall, adding that without government assistance, credit would be even harder to obtain.

Bank of America Chairman and CEO Ken Lewis, whose firm has received $45 billion in government assistance from the Troubled Asset Relief Program, or TARP, told lawmakers that his company extended more than $115 billion in new credit to consumers and businesses during the fourth quarter.  This message was echoed by the seven other CEOs testifying Wednesday, including JPMorgan Chase’s, and Jamie Dimon and John Stumpf of Wells Fargo.

Public resentment for these banks has soared in recent weeks amid concerns that some financial institutions have used taxpayer money for purposes other than lending, at a time when taxpayers are struggling to stay in their homes or losing their jobs.

This apparent unawareness of the US bankers to the realities they face is matched by what is going on in the UK.  Andy Hornby, former chief executive of HBOS, gave what has been described as a sorry excuse for an apology.

Nice apologies, chaps, but, sorry, all that stuff about how the seizure of the wholesale funding markets could have overwhelmed any humble banker doesn’t tell the full story. Andy Hornby revealed the limited character of the bankers’ apologies at yesterday’s UK Treasury select committee when he said: “I don’t think I am particularly personally culpable.”

Hornby, Lord Stevenson, Sir Fred Goodwin and Sir Tom McKillop seemed to have forgotten why they were in the “bad boys” group of bankers appearing before the committee. It is because their banks were on the brink of collapse and had to be rescued by the taxpayer.

Banking / business as usual.  It cannot be allowed to happen.

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