RBS Writes Down 206 Million Pounds, Helped by Accounting Rules

RBS Writes Down 206 Million Pounds, Helped by Accounting Rules


Nov. 4 (Bloomberg) -- Royal Bank of Scotland Group Plc, waiting to take up the U.K.'s biggest bailout, will write down $206 million pounds ($323 million) of assets in the third quarter using new accounting rules that are less stringent.

Underlying profit before bad loans increased by 7 percent in the first nine months ended Sept. 30, it said in a Regulatory News Service statement today.

RBS's third-quarter writedowns come on top of 5.9 billion pounds in the first half. New Chief Executive Officer Stephen Hester, who also faces rising loans defaults and slumping economies in the U.K. and the U.S., may cede as much as 60 percent of RBS to the government unless investors exercise rights to buy shares.

``A loss for the year is possible,'' said Leigh Goodwin, a London-based analyst at Fox-Pitt Kelton Ltd. ``The question is whether Stephen Hester will kitchen sink things or wait to get his feet under the able. He won't want to be announcing more bad news in six months,'' said Goodwin, who has an ``outperform'' rating on stock.

RBS fell 3.4 percent in London trading yesterday to 65.2 pence. That's below RBS's offering price of 65.5 pence for 15 billion-pound sale of ordinary shares later year, meaning investors have little incentive to buy unless shares rise.

Preferred Shares

The company also plans to sell 5 billion pounds of preferred shares that pay the government 12 percent interest. The U.K. rescue package, which also covers Lloyds TSB Group Plc and HBOS Plc, restricts dividend payments and executive compensation until the preferred shares are repaid. RBS said shareholders will vote on the fund-raising plan next month.

Barclays, the U.K.'s second largest bank, is trying to stay clear of Prime Minister Gordon Brown's plan to pump 37 billion pounds of new capital into the country's banks to jumpstart lending. The London-based bank agreed to sell almost 7 billion pounds of securities paying as much as 14 percent interest to investors including funds in Qatar and Abu Dhabi to meet the U.K.'s new capital requirements, it said Oct. 31.

RBS follows Frankfurt-based Deutsche Bank AG and London-based Lloyds TSB Group Plc in using new accounting rules to limit writedowns in the last half of the year. The London-based International Accounting Standards Board decided Oct. 13 to allow European banks to avoid marking certain securities and loans to market from July 1.

Deutsche Bank, which reported an unexpected third-quarter profit of 435 million, said doesn't need new capital. Lloyds TSB, which agreed to acquire Edinburgh-based HBOS, is seeking to raise 17 billion pounds for the combined banks.

BLOOMBERG