Royal Bank of Scotland set to announce £5bn loss

The Royal Bank of Scotland (RBS) will announce losses for 2009 of about £5bn on Thursday, after it struggled with billions of pounds of bad loans.

The bank is also expected to reveal that it will pay a total of £1.3bn in bonuses to its staff.

The UK taxpayer owns 84% of RBS after the government was forced to bail out the bank at the end of 2008.

RBS is the second major UK bank to report 2009 results, after Barclays announced record profits of £11.6bn.

Unlike RBS, and Lloyds Banking Group, Barclays did not take any money directly from the government to help it through the financial crisis.

Lloyds - also part-owned by taxpayers - will release its results on Friday.

Ruined reputation

Announcing losses of about £5bn is usually career-ending for any company's chief executive.

And yet RBS boss Stephen Hester will be trumpeting this figure when the bank publishes its annual results on Thursday morning.

Compared with a loss of £24bn in 2008, anticipated losses of a fifth of that appear to be a major turnaround.

Not that Mr Hester will be rewarded greatly for his efforts - he has already declined to take up his anticipated bonus, worth almost £1.6m.

When Mr Hester took the helm of RBS in October 2008, the world's sixth-largest bank at the time was imploding under the weight of its own reckless investments.

His new charge had just been all but nationalised, its reputation in ruins, and Britain was in the midst of the longest and deepest recession on record.

But, blessed with £200bn of quantitative easing from the Bank of England, RBS, alongside most other banks, managed to turn a nightmare 2008 into a busy 2009.

Blame game

While it is pleasing that a bank 84%-controlled by taxpayers will have dramatically cut its losses, it will irritate quite a few that RBS is set to pay out bonuses worth more than £1.3bn to its investment bankers.

That will be unpalatable for the thousands of firms and individuals who were refused credit by RBS last year.

Then again, the staff at the Edinburgh-based bank are getting used to being blamed for almost everything.

Depending on the pressure group, they should not have funded Kraft's purchase of Cadbury. They should not have acted on behalf of Kingsnorth coal plant. And they should not have indirectly invested in Burma.

Next year may turn out to be the one in which RBS does its time and gets paroled. It will start the sell-off process of RBS branches in England, its insurance business (Green Flag and Churchill) in the UK and multiple businesses overseas.

Government intervention

In the meantime, RBS's investment banking division - the part of the bank that nearly destroyed it - has been holding its own in the market under intense political and commercial pressure.

Commercially, RBS is not in a position to do very much without the blessing of UK Financial Investments (UKFI) - the government body that runs taxpayers' stakes in banks such as RBS, Lloyds Banking Group and Bradford & Bingley.

When asked about what it was like dealing with UKFI, one RBS wit said it was like dealing with a particularly attentive fund manager, but with nuclear weapons.

Unless the bank can start making a profit, however, it will have to put up with such interference for another year at the very least.

Posted at 10:12PM Feb 24, 2010 by Kelly Board in The Economy  |  Comments[0]

Debt Relief Order Rules to Change

The legislations surrounding Debt Relief Orders are set to change for individuals with a small pension funds, according to Labour.

Debt Relief Orders (DROs) are a lesser alternative to Bankruptcy or an Individual Voluntary Arrangement in wiping out personal debt.

DROs are used to wipe off individual debt of less than £15000 if there is basically no way in which the person can realistically pay the debt in a timely manner.  However, there are very specific criteria in which the person must adhere to.

One of these criteria surrounds a person assets, if an individual has more than £300 worth of assets, then they do not qualify for a DRO.  This has been affecting people with a small pension fund as that fund has been pushing people above the threshold despite adhering to every other condition.

This is where the change has been proposed by Business Minister Ian Lucas, he wants to implement a common sense change that will allow the more vulnerable people with a very small pension pot the chance to gain a DRO without necessarily satisfying all of the needs.

Since they were introduced back in April last year, over 12000 people used a DRO in the first 9 months of its existence.  The main issue in implement this change is how large a person’s pension fund can be before they are no longer considered.  The government are currently consulting over this issue.

The Citizens Advice conducted a survey of people to have had DROs rejected to highlight the potential flaw in the rules.  Of the rejected individual surveyed, a huge 96.3% of people were rejected purely because of their pension fund.  Of those people, a substantial 78% had a pension fund that was smaller than £5000. 

Posted at 03:30PM Feb 24, 2010 by Marc Stenton in Insolvency  |  Comments[0]