Peston's Picks

Bothered and bewildered by RBS

• Robert Peston
• 28 Feb 08, 11:19 AM

In a banking world beset by uncertainty and anxiety, Royal Bank’s results on paper look as good as could have been expected.

Profits have grown, the dividend is up, and the balance sheet is stronger than might have been anticipated.

What’s most striking is that RBS appears to have hoovered up almost every spare fiver held by Britons: growth in its UK retail deposits is remarkable.

RBS – or rather its NatWest subsidiary – seems therefore to have been the main beneficiary of savers’ flight out of Northern Rock.

But RBS does not help its cause by the way it presents its annual results – which is somewhat confusing, to put it mildly.

It says that the figures to focus on are for RBS minus the big chunk of ABN which it acquired last autumn.

There is some logic to that, in order to obtain a sense of underlying progress.

However buried away on page 47 of today’s announcement is the disclosure that ABN’s contribution to RBS’s statutory results was actually a loss.

Now it’s all very well to ignore that loss for the purposes of seeing what happened at the rest of RBS.

But hang on a second, who actually owns ABN? Let’s be clear: that loss (albeit a small one of just £16m) belongs to RBS and its shareholders.

Also, Sir Fred Goodwin, the bank’s chief executive, wants it both ways.

He would prefer us to take no account of the real negative contribution made by ABN last year, but does want us to be enthused by the yet-to-be generated incremental profits he expects to make from the acquired operations.

Sir Fred also argues that substantial write-downs on collateralised debt obligations linked to sub-prime and on leveraged finance finance are “one-offs” and therefore can be dismissed when measuring “underlying performance” – which seems a little eccentric.

For RBS, dealing in CDOs and providing leveraged finance to private-equity deals was hardly a marginal activity. And if some of it has gone wrong, well that’s just the rough that followed the years of smooth.

It’s not just me who is a bit bewildered. Analysts at JP Morgan, the giant US bank, described the figures as “some of the poorest disclosure we’ve seen.”

In these strange times, RBS would surely have inspired greater confidence in its shareholders and counterparties if there had been a little bit less bluster and swagger.

• Permalink
• Comments