Cash-strapped RBS set to sell off stake in Bank of China Concerns that lucrative investment will be sacrificed for short-term needsBy John Phelps ROYAL BANK OF SCOTLAND HAS HINTED that it may sell its stake in Bank of China as Sir Fred Goodwin and his board review all options to boost cash resources in the aftermath of the credit crunch.
The value of its 5% interest in China's third-biggest state-owned lender, announced three years ago last Friday, has virtually trebled to about £2.35 billion since it controversially acquired the stake in 2005 and RBS will be free to sell its shareholding when a lock-in clause expires at the end of 2008.
While the group has stressed that its holding is a long-term investment, a spokesman told the Sunday Herald: "It is not our present intention to sell but circumstances may change in the coming months."
A disposal would mark another abrupt U-turn by the bank that specifically ruled out a sale at the time of its rights issue in April. Any move could also be opposed by a number of senior executives.
"I think there is little doubt that RBS will sell down part of their Bank of China stake soon after the lock-in periods expires," said analyst Ian Gordon at Exane BNP. "But they may well retain a smaller shareholding for political purposes."
Only last month, Gordon Pell, head of regional markets at RBS, and a strong candidate to succeed beleaguered chief executive Sir Fred Goodwin, stressed the importance of the investment to long-term planning. "In China it is important to pay attention to long-term relationships," he said. "If you think you can charge in and out you have misread how to do business in the country."
Much depends on whether RBS can make its predicted £4bn profit this year from the sale of its insurance operations and the Australian banking interests acquired with the ABN Amro takeover last year. Some believe that another key consideration is the progress of the group's joint ventures with the formerly state-owned bank.
On the positive side, the pair have enjoyed remarkable success with the launch of a credit card that is believed to have attracted two million new customers in the past six months alone, taking its client base past the five million mark.
In contrast there has been a distinct cooling of attitudes towards their joint involvement in wealth management-a key area of co-operation - after opening just two branches and attracting only 400 wealthy families.
RBS is now believed to be planning to open similar branches on its own through the newly-acquired ABN network, which already manages almost £1bn in funds.
For its part, Bank of China appears to be looking elsewhere for advice after snapping up a 30% stake in a Swiss hedge fund specialist last week, claiming it was attracted by the company's talent pool and its experience in fund management.
At the same time, plans for a joint venture in insurance have been thrown into confusion after the government pushed through new rules last month enabling Bank of China and the other domestic banks to buy out existing insurance companies for the first time.
At this stage, Bank of China appears to have gained more from its relationship with the Scots who have been able to advise on credit controls, information systems and other aspects of commercial banking.
Even so, the Chinese have also suffered from the fallout from the American mortgages fiasco and only last week they had to rush out a statement to say that their exposure to the troubled Fannie Mae and Freddie Mac funds was "manageable" amid rumours of heavy losses.
The first signs of an imminent divorce could come if RBS decides to scrap plans to raise upwards of £6bn for its insurance interests after failing to attract a suitable offer.
Discussions were said to be continuing last week, although directors are in no mood to accept cut-price deals for a division that is likely to be a star-performer in this week's results presentation, with half-year earnings likely to show an increase from £363m to £450m or more.
The group needs to raise funds to repair its balance sheet because of losses caused by the credit crunch, even after raising £12bn from shareholders earlier this year.
Brokers at Exane BNP Paribas believe that bad debts in the US and other provisions could leave the group nursing a £1.25bn overall loss when it announces half year figures on Friday, while the team at Deutsche Bank believes the deficit could be as high as £1.5bn.
Analysts are concerned about the potential for further problems at the group's American banking operations and its £100bn plus exposure to troubled commercial property markets as well as the deterioration in general global economies.
Despite the worries, a number of brokers have put out buy circulars on RBS shares in recent weeks and a consensus of analysts polled by Hemscott looks for underlying profits of about £9.2bn, down from £9.9bn last year, excluding provisions and impairments.
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Posted by: Wullie, Dunbretton on 9:27pm Sat 2 Aug 08
Let's hope the RBS survives the storm.
Yes we are unhappy about the mess this Labour government have gotten us into, but we do want the RBS to survive.
Let's hope the RBS survives the storm.
Yes we are unhappy about the mess this Labour government have gotten us into, but we do want the RBS to survive.
Posted by: wullie on 9:45pm Sat 2 Aug 08
More Gordon Brown success.
Prudence has paid off well.
Yes, we should hail the great man. He has done well.
More Gordon Brown success.
Prudence has paid off well.
Yes, we should hail the great man. He has done well.
Posted by: billy wilson, Ukraine on 5:59am Sun 3 Aug 08
"we are unhappy about the mess this Labour government have gotten us into"
WULLIE, THERE IS NO SUCH WORD AS "GOTTEN". IT SHOULD BE "GOT". (THE USE OF "GOTTEN" IS LAZY AMERICAN SLANG.) AND PLEASE, HERALD READERS AND POSTERS, DESIST FROM USING THE WORD "OUTWITH" INSTEAD OF "OUTSIDE". LOOK UP THE ENGLISH DICTIONARY. "OUTWITH" DOES NOT FEATURE IN ANY DICTIONARY THAT I HAVE SEEN.
"we are unhappy about the mess this Labour government have gotten us into"
WULLIE, THERE IS NO SUCH WORD AS "GOTTEN". IT SHOULD BE "GOT". (THE USE OF "GOTTEN" IS LAZY AMERICAN SLANG.) AND PLEASE, HERALD READERS AND POSTERS, DESIST FROM USING THE WORD "OUTWITH" INSTEAD OF "OUTSIDE". LOOK UP THE ENGLISH DICTIONARY. "OUTWITH" DOES NOT FEATURE IN ANY DICTIONARY THAT I HAVE SEEN.
Posted by: tolduso, glasgow on 10:16am Sun 3 Aug 08
more panic,reversals,u turns and obfuscation.
what is the real extent of the debt,loss and exposure to downside risk? a problem caused (REPEAT CAUSED) by Cur Fred and his managers' incompetence by making high risk investments with the shareholders' money.investment criteria would be rejected if a customer made such proposals.now they are sucking much needed finance out of the economy and adding to the credit problem.
CHALLENGE CHURCHILL...SHOULD CUR FRED RESIGN??
OOOHHHHHHH YESSSSSSS.
more panic,reversals,u turns and obfuscation.
what is the real extent of the debt,loss and exposure to downside risk? a problem caused (REPEAT CAUSED) by Cur Fred and his managers' incompetence by making high risk investments with the shareholders' money.investment criteria would be rejected if a customer made such proposals.now they are sucking much needed finance out of the economy and adding to the credit problem.
CHALLENGE CHURCHILL...SHOULD CUR FRED RESIGN??
OOOHHHHHHH YESSSSSSS.
Posted by: philologist, scotland on 10:08pm Sun 3 Aug 08
Billy Wilson -- try not shouting and discover the use of the Shift and Caps Lock keys - you are of course quite right to critcise the cretin that is Wullie, Wilhelm or whatever over his use of Americanisms. However the word "outwith" is a perfectly respectable and correct word in Scots and as such its use is more than welcome here. If you can't find it in your dictionaries then you are "nekulturny" as they say in the Ukraine - well the civilised bits of it anyway.
Billy Wilson -- try not shouting and discover the use of the Shift and Caps Lock keys - you are of course quite right to critcise the cretin that is Wullie, Wilhelm or whatever over his use of Americanisms. However the word "outwith" is a perfectly respectable and correct word in Scots and as such its use is more than welcome here. If you can't find it in your dictionaries then you are "nekulturny" as they say in the Ukraine - well the civilised bits of it anyway.
Posted by: Ring Master, London on 12:12am Mon 4 Aug 08
What most people don't understand is that the Bank's don't know where the bottom is.
The most sophisticated risk models in the world still rely on very crude assumptions. Most people can't even spell stochastic calculus, yet alone understand their limitations. It’s just a show, the carnival of confidence that replaces the “wet finger in air” technique.
Guess what? After this crisis ends, the carnival will not shut down. They will just get more PhDs, more degrees; the show will go on but get bigger and bigger. They will promise that they understand what went wrong and it won’t go wrong again? How could it? We now have smarter people who have looked at the problem and we now have 1000 more equations to show why the last crisis happened. This time it’s for real! We’ve cracked it! Come one, come all to the biggest show on this earth!
What most people don't understand is that the Bank's don't know where the bottom is.
The most sophisticated risk models in the world still rely on very crude assumptions. Most people can't even spell stochastic calculus, yet alone understand their limitations. It’s just a show, the carnival of confidence that replaces the “wet finger in air” technique.
Guess what? After this crisis ends, the carnival will not shut down. They will just get more PhDs, more degrees; the show will go on but get bigger and bigger. They will promise that they understand what went wrong and it won’t go wrong again? How could it? We now have smarter people who have looked at the problem and we now have 1000 more equations to show why the last crisis happened. This time it’s for real! We’ve cracked it! Come one, come all to the biggest show on this earth!
Posted by: david hill, huddersfield & bern on 6:02pm Mon 4 Aug 08
Britain is in for the worst economic hammering it has witnessed since the end of WW2.
In this respect there are now major pointers emerging, which should send shivers down the spines of the British electorate.
Indeed recently, the Bank for International Supplement, the organisation that fosters cooperation between central banks, has warned that the credit crisis could push world economies into a crash on a scale not seen since the Great Depression.
As an example of what the central banks are saying also, the reserve bank of India stated just 6-days ago that to address the world’s financial crisis, central bank interventions have been staggering and on a level not witnessed since the Great Depression. But will the central bank support be enough is the critical and worrying question. Indeed recently again in this respect, the International Monetary Fund (IMF) stated also that the world is witnessing the greatest shock to global finances since the 1930s. Further, central banks led by the US Federal Reserve, have already piled help and credit on the financial system over the past 12-months, as they did again only last week, to nurse it through this pending economic disaster. Therefore this need will certainly arise continuously to weather the storm, if we can, as the pointers are looking very bleak indeed. Now unfortunately adding to this, the problems are spreading with evidence that started as a financial-sector crisis is just starting into a business crisis. Indeed with no finance, business will find it hard to survive and with the size of HBOS's recent failure to raise funds together with the price of underwriting an issue, it will be impossible for others to do likewise from now on. Therefore our banks will have major liquidity problems and failures for many years to come. Indeed, they will probably not stabilise again for at least a decade. The global writedowns and credit losses of the banks since January 2007 is around US$500 Billion and there is no sign of a let up. Indeed, the IMF stated that the credit crunch losses will hit US$ 1 Trillion at least. Following on from these astronomical losses, Capitol Economics stated recently that we should be preparing for recession as it's more likely than not. In this respect consumers are going to get hit where it hurts by a mixture of the housing market downturn and inflation they stated. People will see growth falling from 2 per cent in 2008 to flat (zero) next year and added to this, companies will see their profits fall dramatically. Consequently one can predict that firms, due to the lack of financial stability and ‘inadequate liquidity’ of our banks, will not be able to borrow. As the financial crisis becomes a firm business crisis Capitol Economics predict unemployment will increase from 1.6 million people to 2.5 million and while falling house prices do not hit pockets, lost jobs do they say. Therefore the effects of this present financial crunch will last for years for businesses and where others will not even survive to see the recovery at all.
All this shows that financial regulators throughout the world are not robust enough and have not enough power to curb the excesses of the financial world. Governments therefore, when this is all over, should make sure this time, that the full market philosophy is kept firmly in check. If not, what we are experiencing now will happen time and time again. The ‘free’ market has got to change therefore and where the public (consumers) always learn the hard way, for they are the ones the banks really hurt and of course the ones who have to ultimately pay.
Dr David Hill
World Innovation Foundation Charity (WIFC)
Bern, Switzerland
Britain is in for the worst economic hammering it has witnessed since the end of WW2.
In this respect there are now major pointers emerging, which should send shivers down the spines of the British electorate.
Indeed recently, the Bank for International Supplement, the organisation that fosters cooperation between central banks, has warned that the credit crisis could push world economies into a crash on a scale not seen since the Great Depression.
As an example of what the central banks are saying also, the reserve bank of India stated just 6-days ago that to address the world’s financial crisis, central bank interventions have been staggering and on a level not witnessed since the Great Depression. But will the central bank support be enough is the critical and worrying question. Indeed recently again in this respect, the International Monetary Fund (IMF) stated also that the world is witnessing the greatest shock to global finances since the 1930s. Further, central banks led by the US Federal Reserve, have already piled help and credit on the financial system over the past 12-months, as they did again only last week, to nurse it through this pending economic disaster. Therefore this need will certainly arise continuously to weather the storm, if we can, as the pointers are looking very bleak indeed. Now unfortunately adding to this, the problems are spreading with evidence that started as a financial-sector crisis is just starting into a business crisis. Indeed with no finance, business will find it hard to survive and with the size of HBOS's recent failure to raise funds together with the price of underwriting an issue, it will be impossible for others to do likewise from now on. Therefore our banks will have major liquidity problems and failures for many years to come. Indeed, they will probably not stabilise again for at least a decade. The global writedowns and credit losses of the banks since January 2007 is around US$500 Billion and there is no sign of a let up. Indeed, the IMF stated that the credit crunch losses will hit US$ 1 Trillion at least. Following on from these astronomical losses, Capitol Economics stated recently that we should be preparing for recession as it's more likely than not. In this respect consumers are going to get hit where it hurts by a mixture of the housing market downturn and inflation they stated. People will see growth falling from 2 per cent in 2008 to flat (zero) next year and added to this, companies will see their profits fall dramatically. Consequently one can predict that firms, due to the lack of financial stability and ‘inadequate liquidity’ of our banks, will not be able to borrow. As the financial crisis becomes a firm business crisis Capitol Economics predict unemployment will increase from 1.6 million people to 2.5 million and while falling house prices do not hit pockets, lost jobs do they say. Therefore the effects of this present financial crunch will last for years for businesses and where others will not even survive to see the recovery at all.
All this shows that financial regulators throughout the world are not robust enough and have not enough power to curb the excesses of the financial world. Governments therefore, when this is all over, should make sure this time, that the full market philosophy is kept firmly in check. If not, what we are experiencing now will happen time and time again. The ‘free’ market has got to change therefore and where the public (consumers) always learn the hard way, for they are the ones the banks really hurt and of course the ones who have to ultimately pay.
Dr David Hill
World Innovation Foundation Charity (WIFC)
Bern, Switzerland
Posted by: AFC, edinburgh on 3:20am Thu 7 Aug 08
Billy
Please check the Oxford English Dictionary. You will find outwith is defined as being a mainly Scottish word meaning outside. Its use on a Scottish newspaper's website would not seem unreasonable
Billy
Please check the Oxford English Dictionary. You will find outwith is defined as being a mainly Scottish word meaning outside. Its use on a Scottish newspaper's website would not seem unreasonable
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