London: The Royal Bank of Scotland posted an annual loss of £24.14 billion ($34.4 billion) - the biggest in British corporate history - and unveiled a massive restructuring plan on Thursday that will offload many of its international businesses.
The already part-nationalized bank also said it will dump £325 billion of toxic assets into a government insurance program, a step that could result in the state increasing its stake to as high as 95%.
RBS Chairman Philip Hampton blamed the massive 2008 loss, which compared with a £7.3 billion profit in 2007, on the “unprecedented turbulence” in financial markets and deteriorating conditions around the world.
The bank’s revenue fell 15% to £25.87 billion.
RBS Chief Executive Stephen Hester, who replaced Fred Goodwin after he resigned in the wake of the bank’s financial downfall, refused to make forecasts for the current “difficult” year but said he was confident the restructuring and the government assistance would return RBS to “standalone strength.”
The bank said it planned to shift £240 billion, or 20%, of its funded assets to a noncore division. Those assets will then be disposed of or run down over the next three to five years.
Hester said the designated “bad” assets would be culled from a range of regions and businesses, but the bulk would come from the bank’s underperforming Global Banking and Markets division.
The restructuring, which includes plans to cut more than £2.5 billion pounds from the bank’s cost base, will leave the bank centered on Britain, with smaller, more focused global operations.
Meanwhile, RBS’ participation with another £325 billion in the government’s asset protection program was widely anticipated, though analysts had expected it to seek guarantees for only about £200 billion in assets.
RBS will pay £6.5 billion to the Treasury to take part in the program, aimed at encouraging a return to lending by increasing the capital strength of banks. The cost will be funded by issuing new shares.
The government has agreed to take a new class of “B” shares worth £13 billion, with the option for another £6 billion worth.
That raises the possibility of the government taking on as much as £25.5 billion in new capital in the bank, which Hester acknowledged could lift its stake from 68% to as much as 95%. However, he said the government had agreed to cap its voting rights to 75%.
The overhaul received a positive response from investors, with the bank’s share price soaring 22% to 28 pence on the London Stock Exchange.
Panmure Gordon analysts said the asset protection program, also expected to be taken up by Lloyds when it announces full-year earnings on Friday, came at a favorable price.
“While we do have concerns about further losses and capital strains ... we expect these concerns will crystallize over the next six months; for now, the markets will probably focus on the favorable terms of this bailout,” the said in a note.
Hester said that investing more in the government program would give the bank a greater degree of stability as well as allow it to fulfill an agreement with the government to increase its funding to its core British customer base.
He declined to comment in detail on potential job losses as a result of the restructure, but acknowledged that reports of the bank shedding 20,000 positions, or 10% of its work force, were “not unreasonable.”
RBS’ downfall in the wake of the global credit squeeze has been swift.
As recently as July 2008, The Banker magazine rated it as one of the world’s top banks based on its tier 1 capital.
Goodwin and former chairman Tom McKillop both issued a public apology for their roles in the bank’s downfall after resigning, but controversy over their huge salaries continued to rage on Thursday with revelations that Goodwin, 50, is receiving a £650,000 a year pension.
“You cannot justify these excesses, especially when you have got such a failure of this magnitude,” Treasury chief Alistair Darling told BBC radio.
Darling said the Treasury had urged Goodwin to give up his £16 million pension pot, but had not yet received a reply.