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Royal Bank of Scotland (RBS) shares tumbled 8% this morning, as hopes that the banking crisis is over and the economy might quickly return to health faded.
Bank shares have been rising all week on talk that the worst had passed. Even bad debt write-offs of £11 billion at Lloyds Banking Group couldn't stop creeping optimism.
Today RBS revealed that it barely broke even in the last six months, recording a nominal profit of £15 million which was engulfed by impairments of £7.5 billion.
Chief executive Stephen Hester said the road to recovery would be long and tricky.
“There is no miracle cure. It will take five years as I have always said,” he told the Standard. “There is a risk that some people get too enthusiastic about the economy and about whether banks will bounce back dramatically. We have some big issues.”
The government took a 70% stake in RBS at 50p a share — a cost of £20 billion. That investment was today underwater as the stock fell 4.5p to 49p.
RBS's interim results statement ran to 240 pages even before the lengthy chief executive's review which set out the challenges facing the company.
Hester claimed this as a “complete new standard for disclosure among UK banks” as he pledged to make RBS “the hallmark of transparency and straight talking”.
The loss to shareholders in the last six months is £1 billion, though the “core” bank managed to make £6.3 billion.
RBS also announced the appointment of Bruce Van Saun as its new finance director, beginning on 1 October.
He replaced Guy Whittaker, who is retiring.
Van Saun was most recently chief financial officer of Bank of New York Mellon. His appointment completes the board shake-up led by Hester.
He said: “Those with accountability for past mistakes have gone.”
Ed Woolfitt, head of trading at Galvan, said of the results: “Although operating profits from the core bank improved, RBS was distinctly more cautious in tone than its rivals looking forward.
“It is clear from the incredibly complex results statement that while some areas of the RBS business are improving, until the impairments show signs of peaking it is hard to view RBS shares as anything other than a weak hold,” he said.
Critics of the industry say banks that are deemed “too big to fail” should be broken up, with the investment banking arm split from the plain vanilla High Street offering.
Asked if he agreed, Hester said: “It is a matter of fact that the banks which have got into trouble around the world are not similar. It is pretty hard to argue that Dunfermline Building Society is too big to fail, yet it had to be bailed out.”
Hester is in line for a bonus of
£6.4 million if the share price reaches 70p in three years' time.
RBS's loss of £24 billion in 2008 was the biggest in UK corporate history.
