Royal Bank of Scotland to beat profit forecasts
Royal Bank of Scotland (RBS), the UK’s second-biggest bank, reported £1.5 billion ($3 billion) of writedowns caused by slumping credit markets and said earnings will exceed analysts’ estimates this year.
By Bloomberg |
LONDON: Royal Bank of Scotland (RBS), the UK’s second-biggest bank, reported £1.5 billion ($3 billion) of writedowns caused by slumping credit markets and said earnings will exceed analysts’ estimates this year.
Royal Bank rose the most since November 12 in London trading after the Edinburgh-based bank said in a statement on Thursday that operating profit is “well ahead” of analysts’ forecasts of £9.8 billion. The gross write-downs included US subprime securities, leveraged loans and losses at ABN Amro Holding NV. They were partially offset by £250 million of accounting gains.
“People were expecting 2 billion or even 2.5 billion pounds,” said Colin Morton, a Leeds-based fund manager at Rensburg Fund Management who helps manage £1.5 billion including Royal Bank shares. “It is as upbeat as you could ever expect it to be.”
Royal Bank, Europe’s No 1 provider of loans used to finance leveraged buyouts, 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’s Asian and securities units accounted for about a fifth of the overall write-down and will add more to earnings than it forecast.
Royal Bank rose 6.3% to 496 pence at 10 am on Thursday in London, valuing the company at 49.5 billion pounds. The stock declined 25% this year, underperforming the Bloomberg Europe Banks and Financial Services Index, which fell 15%.
The write-downs were in line with 1.5 billion-pound median estimate of five analysts, surveyed by Bloomberg.
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The bank will write down about £950 million in assets backed by US subprime mortgages, including collateralized debt obligations, 250 million pounds on leveraged loans, and 300 million of US mortgage-related assets at ABN Amro. The write downs were partially offset by an accounting gain of £250 million on Royal Bank’s debt. The losses at ABN Amro will be recorded as an “acquisition accounting adjustment” and won’t reduce Royal Bank’s earnings, it said.
“This an attempt to capture what the total losses will be” in the bank’s debt securities operations, chief executive officer Fred Goodwin said on a conference call with reporters. “There are no guarantees. The second-half was not a barrel of laughs,” he said.
Barclays, which dropped out of the contest to buy ABN Amro, booked a gross write-down of £1.7 billion on subprime-related assets and loans for leveraged buyouts. They were partially offset by accounting gains of about £400 million in the second half.
London-based HSBC Holdings, Europe’s biggest bank by market value, wrote down $925 million for the third quarter.
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Royal Bank got about a quarter of pretax profit from the US before it teamed with Banco Santander and Fortis to buy Amsterdam-based ABN Amro. The acquisition will contribute more to Royal Bank’s earnings and return on investment than it previously indicated, it said. “We feel we are in a much better position” with the acquisition of ABN Amro to face a global slowdown, Goodwin said. “We now anticipate better financial returns than we envisaged at the time of the bid.” ABN Amro’s adjusted earnings for 2007 will be 2.30 euros a share, consistent with guidance it gave on September 17, Royal Bank said.
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