Fines paid for malpractices leads to huge losses for RBS

Royal Bank of Scotland (RBS) has posted £5.2bn pre-tax loss for 2012, marking its fifth consecutive annual loss after government bail-out in 2008. Terming the year as a “chastening” one, the bank attributed the losses to the ablution of “past mistakes”, having paid mammoth fines for PPI mis-selling, Libor manipulation and mis-selling of interest rate swaps. As a part of the ‘chastening process’, RBS plans to sell some of its US businesses including Citizens.

The bank’s £5.2bn pre-tax loss came from £4.6bn accounting charges or changes in its own credit value, which is a measure of the bank’s ability to buy back its own liabilities. RBS had set aside £650m to address claims for by small business for mis-sold interest rate hedging products and has agreed to pay UK and US regulators £381m relating to its role in the rigging of Libor, a key interest rate.

RBS took a further £450m charge in the fourth quarter to cover Payment Protection Insurance (PPI) claims, taking provisions for mis-selling of the policies to £2.2bn. However, RBS reported an operating profit of £3.5bn, up from £1.82bn the previous year – the highest since its bail-out in 2008.

Despite making losses in 2012, RBS handed out generous amount of bonuses to its staff of around £607 million. Sir Philip Hampton, who had earlier defended chief executive Stephen Hester’s pay, has confirmed that the part-nationalised bank had moved into a phase where it is ready for he government to start selling its 82% stake in the bank.

RBS officials pointed to the fact that the bank has cut its balance sheet by more than £1 trillion over the past five years as evidence that the bank was on the road to stability and profitability. RBS saw changed fortunes in its core business, with retail and commercial sector income down 6% but markets up 68%.