RBS Posts the Largest Loss in UK History

Royal Bank of Scotland unveiled the biggest loss in British corporate history on Monday, overshadowing a second government bailout for the sector and sending its shares reeling to a 23-year low.

RBS said it would report a 2008 loss of up to 28 billion pounds ($41 billion), driven largely by a goodwill impairment charge of 15 to 20 billion pounds related to its acquisition of parts of Dutch rival ABN Amro in 2007.

Excluding goodwill impairment, the bank said in a statement it expects a full-year loss of 7 to 8 billion pounds.

The statement came as the UK government sought to counter a looming recession by unveiling a new rescue package for banks that will see its stake in RBS rise to nearly 70 percent from 58 percent.

The latest bailout failed to support shares in Lloyds Banking Group, however, as they made their debut on the London Stock Exchange.

Traders said the package had been overshadowed by fears that the massive losses at RBS would set a precedent for the rest of the sector.

Lloyds Banking Group (LBG), created by Lloyds TSB's rescue of leading mortgage lender HBOS, said on Monday Lloyds had traded satisfactorily and that HBOS' trading position was unchanged since their last update in December.

Shares in LBG initially rose more than 7 percent following the trading update and the government's latest bid to bolster bank capital and lending, but the stock was down 9 percent at 89.5 pence.

David Buik, partner at BGC Partners, said there was a certain "inevitability" to the LBG share price fall.

"The fact that in terms of ownership they have 28 percent of the mortgage market and house prices are falling makes them vulnerable," he said.

More Injections?

LBG said its core tier one capital ratio -- a key measure of its capital strength -- was within its target range of between 6 and 7 percent at the end of last year.

The tier one ratio is set to rise by about 0.35 percentage points as a result of plans to swap 2 billion pounds of its bonds for new tier one capital instruments, the bank added.

Collins Stewart analysts said the bank's capital ratios already included "materially more writedowns" than peers, but that the risk of further capital injections in the sector remained.

Sharon Lorimer

"We are holders of Lloyds but remain cautious that further injections cannot be ruled out," they said.

Shares in Barclays were down 7.2 percent at 90.80 pence after the bank responded to a 25 percent slump in its share price on Friday by saying it was on course to report 2008 profits well ahead of the 5.3 billion pounds penciled in by analysts.

Dealers had, in part, blamed the fall on the expiry of a four month ban on short-selling banking shares.

RBS was down 66 percent at 11.80 pence to their lowest level since 1986.

Shares in HSBC were down 12.9 percent at 466.50 pence after it said it remained one of the world's most well-capitalized banks and could not envisage circumstances where it would seek capital support from the British government.

Lending Relaxed

Evolution Securities banking analyst Bruce Packard advised that, with the exception of HSBC, clients should steer clear of the banking sector until it could be analyzed "more rationally."

"We believe that relieving worries about structured credit asset valuation makes a rights issue by HSBC, which we thought was unlikely, even less likely," said Packard, who has a "buy" recommendation on HSBC and a price target of 950 pence.

The government, anxious to stimulate lending ahead of data later this week expected to confirm that Britain is in recession, also said it would relax lending conditions imposed on mortgage lender Northern Rock following last year's nationalization.

The bank had been encouraging customers to re-mortgage elsewhere as part of a strategy to pay off a 26 billion pound emergency government loan.

"In order to support government policy to increase mortgage lending capacity in the market, the company confirms that it is slowing down the rate of mortgage redemptions," Northern Rock said on Monday.

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