Report: RBS to book $87B in risky asset losses in 2010, British taxpayer on hook

LONDON – Royal Bank of Scotland Group Plc will record 57 billion pounds ($87 billion) of losses on its government-insured risky assets, the United Kingdom’s Asset Protection Agency said today.
While there is a “reasonable chance” that the British Treasury will have to step in to pay out a “relatively small amount in 2015,” the government can ultimately be expected to profit from the insurance, it said. Assets insured by the British taxpayer have declined by 18 percent to about 231 billion pounds ($353 billion), according to the agency.
The risky assets held by the parent of Providence-based Citizens Financial Group were assessed at the end of March after reaching 282 billion pounds at the end of 2008, the agency said in its annual report released Thursday. The fall was partly attributable to asset sales, early repayments and maturities, it said.
There is a likelihood that the U.K. Treasury “will have to payout temporarily under the APS even though lifetime expected loss does not exceed 60 billion pounds,” the report said.
Under the program, the government will pay for losses on the first 60 billion pounds of assets, with the government paying for 90 percent of losses thereafter.
“The recovery is extremely fragile and the recent travails of the eurozone and its banks serve as a salutary reminder it would be too early to declare our task over,” said Stephan Wilcke, CEO of the APA. “The pool of assets remains vulnerable due to high leverage and significant refinancing risks, and it is largely due to the extremely low interest rates that we have been spared the early realization of larger losses.”
The APA was created last year as the government was forced to bail out RBS with a 25.5 billion pound capital injection. RBS CEO Stephen Hester in November said the bank planned to exit the program within five years. More than half the risky assets were made in foreign currencies, the APA said.
The government said it expects to make a profit of 5 billion pounds from the program, helped by 2.5 billion pounds from Lloyds Banking Group Plc, which last year decided not to enter the plan.
The 83 percent government-owned bank agreed with the European Commission in November it would sell more than 300 hundred branches, insurance units and other assets in return for receiving state aid.