The Royal Bank of Scotland sinks £1.4bn into the red

Source - BBC News

 

Royal Bank of Scotland has plunged back into the red with a £1.4bn ($2.3bn) pre-tax loss during the three months to September.

 

RBS blamed the loss on changes to the "fair value" of its own debt, but said it was making "tangible progress".

 

The bank, 84%-owned by the tax payer, had appeared to be on the mend after it reported a profit of £1.15bn for the previous three months.

 

Market conditions would remain challenging, RBS said.

 

Chief executive Stephen Hester said the bank was making "good progress in our recovery", but that highly volatile accounting charges could "obscure our underlying story".

 

RBS said while bad debt provisions were improving, changes to the "fair value of own debt" had caused the losses.

 

Since October 2008, the bank has announced 23,000 job losses worldwide, including 17,100 in the UK.

 

Government control

 

RBS led a consortium that bought Dutch bank ABN Amro before the credit crunch in 2007, but the deal was a disaster, weakening its balance sheet and forcing the government to pump in about £45bn to keep the bank afloat.

 

The government paid an average of 50.2 pence for each of the 90.6 billion RBS shares it bought to save the bank from collapse. On Thursday, the shares had closed at 47.14p.

 

There are not thought to be any government plans to sell its stake in either RBS or Lloyds any time soon - both in the hope of making a larger profit as the bank continues to strengthen and the feeling that such a move could threaten the fragile banking recovery.

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Okay, so, basically the last report of a supposed £1.15bn profit must've been a complete load of bollocks, and an Enron-style example of "creative accounting"...? Basically, they produced a false report in the previous three months which painted a completely false picture of the financial health of the bank....

 

Well, if I'm WRONG, then let me know, because I dunno how else you can go from being over a billion in profit to being a over a billion in debt in a space of three months if the books are actually balanced correctly in the first instance.....

 

And these fukkers will likely still insist they should be paid bonuses..... <_<

Creative Accounting isn't to blame here.

 

They have revised their debt figure. They have basically gone oh $h!t, we're deeper in the hole than we thought. The listing rules say that once they figure that out they have to inform the market, which is what they have done.

 

It is very very easy to go from a profit to a loss very suddenly, especially in a volatile market or where there are external forces at play [other than the market]. It is likely that the actual cost of their debt and the cost of servicing this debt has increased. This creates an accounting loss that they will have had to put through the Profit and loss sheet so it can trickle down through retained earnings and go into the balance sheet to keep it balanced.

 

Long term debts are kept in the bottom of the balance sheeet, as there has been no changes to the assets and short term liabilities of the company that revision must be accounted for within the bottom section to keep everything in balance. The loss figure will enter the bottom section of the balance sheet through retained earnings and cancel out the revision to the debt keeping the balance sheet nice and balanced.

 

This isn't an actual loss, it's an accounting loss that is created to keep everything balanced and in check. Revaluations happen all the time and can be used to create an accounting profit so it looks like the firm is profitable when it is infact making losses, that is creative accounting. What RBS have done is created a loss, not something that one aims to achieve when manipulating the accounts of a firm. Had RBS not done anything about the cost of their debt, that would be creative accounting and when the debt fell due, they would have to put through multiple other costs through the accounts relating to the debt being higher than the provision and because they didn't account for it earlier they could fall into cash flow difficulties despite being profitable and end up requiring another bail out.

 

 

For once, RBS are in the right, and it is likely that they will be profitable next quarter. This happens very often across the stock market and the only reason it has been singled out is because of the credit crunch and the problems with the banks. Had this been Tesco nobody would have batted an eyelid.