RBS sub-prime losses of £1.5 billion expected

by Gill Montia

Story link: RBS sub-prime losses of £1.5 billion expected

Royal Bank of Scotland (RBS) will publish a trading statement on Thursday which is expected to include details of a £1.5 billion loss resulting from the credit crisis.

In recent weeks, RBS, which is the UK’s second-largest bank, has maintained that the diverse nature of its operations will allow it to withstand the recent turmoil on the money markets and remain in good financial shape.

However, the bank has a strong presence in the debt markets and there have been rumours in the City that its write-down in connection with the US sub-prime mortgage crisis could be as high as £12 billion.

Analysts at Sanford Bernstein, the investment firm, have forecast a relatively modest loss of £1.9 billion, but this would still be above the £1.3 billion charge taken by Barclays in its sub-prime mortgage-related business.

The trading statement is likely to include a strong defence of the bank’s business strategy from chief executive Sir Fred Goodwin, who will be emphasising the spread of the bank’s business.

However, RBS’s tier one ratio, which is a measure of the capital adequacy of a bank, is expected to drop from 4.7% to 4.25%, by the end of 2007.

This will, in part, be attributable to its acquisition of ABN Amro, the Dutch bank, this autumn.

Analysts will be watching the RBS share price closely on Thursday as so far this year the bank has lost almost a third of its value, or close to £19 billion.