LONDON – Royal Bank of Scotland Group plc, the Citizens Financial Group Inc. parent now controlled by the U.K. government, today warned its earnings will continue to disappoint for another two years as it posted an unexpected loss for the first half of this year.
RBS posted a net loss of 1.04 billion pounds ($1.74 billion) in the first six months of 2009, compared with a loss of 827 million pounds ($1.38 billion) during the same period last year. The bank has been 70 percent owned by the British government since receiving a bailout.
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The bank’s results were a far cry from the prediction of analysts surveyed by Bloomberg News, who had expected RBS to post a net profit of 1.1 billion pounds ($1.84 billion). Their optimism followed positive earnings reports from other major British banks such as Barclays plc and HSBC Holdings plc.
“There is every sign that our financial performance over the next two years, at a group level, will be poor due to the severe economic downturn in 2008 and 2009 and consequent impact on impairments and funding costs,” Stephen Hester, the bank’s CEO, said in a statement. About 70 percent of the bank’s losses came from divisions it plans to sell, Bloomberg said.
Richard Hunter, head of equities at Hargreaves Lansdown in Bristol, England, told Bloomberg: “The U.K. banking sector is now effectively polarized between the have and the have-nots, with RBS in the latter category.”
RBS also set aside 7.52 billion pounds ($12.62 billion) to cover loan defaults and declining asset values as non-performing and potential problem loans more than tripled to 31 billion pounds, or 5.1 percent of gross loans and advances, according to Bloomberg.
In its report, RBS said Citizens “achieved good success in converting mortgage customers into checking account customers.” Citizens’ total checking accounts rose 2 percent to 4.1 million in the first half, while its business checking accounts increased 3 percent.
Citizens’ residential real estate portfolio totaled $45.9 billion on June 30, down from $50.1 billion at the end of last year, the bank said. The proportion of borrowers one payment or more behind rose to 2.7 percent of home equity loans and 3.7 percent of mortgages at Citizens, up from 1.5 percent and 1.7 percent, respectively, on Dec. 31.
Citizens’ home equity portfolio was hit with net credit losses of $291 million in the first half, equal to 9.4 percent of balances on an annual basis, compared with 5.3 percent of balances in 2008.
In a separate presentation to analysts, RBS chairman Philip Hampton said the bank plans to have Citizens “restructure to focus on customer leadership in [its] core footprint states” in the Northeast over the next few years.
Royal Bank of Scotland Group plc (LSE, NYSE: RBS) is the parent of Citizens Financial Group Inc. The Providence-based commercial bank holding company and its subsidiary, RBS Citizens NA, operate more than 1,600 branches in 13 states, under the Citizens Bank and Charter One brands, plus non-branch offices in about 40 states. Additional information is available at CitizensBank.com.
