RBS takes a £1.5 billion loss due to US sub-prime loans
Posted by markharrison on December 7, 2007
Following the losses I reported from both Bradford & Bingley and Alliance & Leicester last week, the Royal Bank of Scotland (who own Natwest among others) is the latest to report a huge “writeoff” (ie – anticipated loss) as a result of the US sub-prime crisis.
This may seem, at £1.5 billion (of which £950 million was directly related to sub-prime assets), a huge hit, however, things aren’t as bad as they might appear.
Firstly, RBS is plenty big enough – its underlying profitability looks good, and could be as high as £10 billion, so writing off £1.5 billion in one area, while not great, only represents about 15% of the profit.
Secondly, analysts were expecting write-offs to be higher – many predicting as high as £2 billion earlier in the week, so a £1.5 billion write-off is seen as better than expected. (In a way that sort of reminds me of the famous “Mum, I’ve dropped out of college and am pregnant – not really, I got a B- and wanted you to see it in perspective”-type chain letters.
The only dark cloud is that RBS still has about £5 billion exposure to sub-prime… but even that would still leave them profitable.
Well done to Sir Fred and his team in continuing to be able to make money in a difficult market!