The cost of the credit squeeze for Britain’s largest banks yesterday rose to more than £5bn as Royal Bank of Scotland announced it had set aside £1.5bn as a result of the financial markets meltdown. Financial Times, Daily Telegraph
The RBS charge, lower than some investors had feared, suggests British banks have avoided the worst consequences of the credit squeeze, which has caused large losses at banks such as Citigroup, Merrill Lynch and UBS.
Sir Fred Goodwin, RBS chief executive, said the bank expected full-year, pre-tax profits to be 'well ahead' of analysts’ forecasts of about £9.8bn. He also delivered an upbeat assessment of its break-up bid for ABN Amro, adding that the return on investment from the deal was likely to be better than initially expected.
Shares in Britain’s second largest bank rallied 13 to 478.25p, having fallen almost a third this year, after it revealed total write downs of £1.25bn – including businesses acquired with the takeover of Dutch bank ABN Amro. Analysts were expecting about £1.5bn, with predictions ranging from £1bn to £2bn.
Dismissing the 'fashion' for apocalyptic forecasts, RBS chief executive Sir Fred Goodwin said 'the UK economy is not in bad shape' and predicted an easing of the credit crunch by the second half of next year.
RBS took a separate £250m write down against its £13bn leveraged loan book, which was offset by a £250m gain on the fair value of its debt – a function of higher inter-bank lending rates.