RBS Announce Sub-Prime Writedowns

by Stewart Douglas

Story link: RBS Announce Sub-Prime Writedowns

The Royal Bank of Scotland has today said that it is expecting to have to writedown £1.25 billion worth of exposure to the ill-fated US sub-prime sector, in a week in which the bank announced record pushing financial performance.

Of that loss approximately 25% can be accounted for from ABN Amro’s exposure, which was acquired by RBS back in October.  Nonetheless the announcement today suggests that the bank may have been over eager to invest in the sector, and the scandal that has subsequently saw through major management changes throughout the investment industry.

However market analysts prior to today’s announcement had generally forecast more substantial writedowns to be reported, giving the bank some minor consolation given the actual losses delivered.  It remains to be seen whether any further debt exposure will require to be written down over the coming months.

The crash of the sub-prime sector has dealt a crucial blow to the bank’s interests there, particularly amongst selling mortgages which are now effectively worthless.  However RBS is not alone in experiencing these sorts of problems, with the majority of investment firms holding some exposure.

Overall the Royal Bank is enjoying a successful year, despite the setback with its sub-prime exposure.  However with the bank set to top record profits for the year end 2007, and having secured the business of ABN Amro over rivals Barclays Bank, the Royal Bank of Scotland has had a year not many shareholders would complain about.

Furthermore with deposits at the bank announced to have increased heavily since the Northern Rock collapse, and share prices riding high off the back of another success, the next twelve months look as though they may be just as promising for the Royal Bank of Scotland.