Royal Bank of Scotland Reports $3 Billion Writedown

Royal Bank of Scotland Reports $3 Billion Writedown (Update2)

By Ben Livesey and Jon Menon

Dec. 6 (Bloomberg) -- Royal Bank of Scotland Group Plc, the U.K.'s second-biggest bank, reported 1.5 billion pounds ($3 billion) of writedowns caused by slumping credit markets and said earnings will exceed analysts' estimates this year.

Royal Bank shares rose the most since Nov. 12 after it said in a statement today that operating profit is ``well ahead'' of forecasts. Analysts had said earnings would probably climb 6.5 percent to 9.8 billion pounds. The writedowns, which included U.S. subprime securities and leveraged loans, matched forecasts.

``The fact that they are well ahead of profit estimates is very good news indeed,'' said Simon Maughan, a London-based analyst at MF Global Securities Ltd., who rates the shares ``neutral.''

Edinburgh-based Royal Bank is the last of the largest global banks to disclose losses in the subprime rout, which forced financial institutions to write down about $70 billion of assets. Royal Bank said the 16 billion-euro ($23 billion) acquisition of ABN Amro Holding NV's securities and Asian units accounted for 300 million pounds of the writedown.

Royal Bank rose 7.5 percent to 500.5 pence at 8:15 a.m. in London, valuing the company at 50.1 billion pounds. The stock is down declined 25 percent this year, underperforming the Bloomberg Europe Banks and Financial Services Index, down 15 percent.

Royal Bank, Europe's No. 1 provider of loans used to finance leveraged buyouts, will write down about 950 million pounds in assets backed by U.S. subprime mortgages, including collateralized debt obligations, and 250 million pounds on leveraged loans. The writedowns were partially offset by an accounting gain of 250 million pounds on Royal Bank's debt.

`No Guarantees'

``This an attempt to capture what the total losses will be'' in the bank's debt securities operations, Chief Executive Officer Fred Goodwin said today on a conference call with reporters. ``There are no guarantees. The second half was not a barrel of laughs,'' he said.

Barclays Plc, which dropped out of the contest to buy ABN Amro, wrote down 1.3 billion pounds in the year's second half, it said Nov. 15. London-based HSBC Holdings Plc, Europe's biggest bank by market value, wrote down $925 million for the third quarter.

Royal Bank's second-half net income will decline 4.4 percent to 3.1 billion pounds from a year-earlier, according to the average estimate of 15 analysts surveyed by Bloomberg. The bank got about a quarter of pretax profit from the U.S. before it teamed with Banco Santander SA and Fortis to buy Amsterdam-based ABN Amro.

``We feel we are in a much better position'' with the acquisition of ABN Amro to face a global slowdown, Goodwin said on the call. ``We now anticipate better financial returns than we envisaged at the time of the bid.''

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