£4.6bn accounting charge for RBS after “chastening” 2012

by Calum Fuller

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28 Feb 2013

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Royal Bank of Scotland

THE ROYAL BANK OF SCOTLAND took an accounting charge of £4.6bn for changes in the value of its own credit in 2012.

The charge makes up the lion's share of £5.17bn loss it made to the year ending 31 December 2012 and relates to changes it made to its own credit, a measure how much it would cost to buy back its own liabilities.

Own-credit accounting allows banks to book profits even if they see the value of their own credit quality decline. In RBS's case its improved creditworthiness means it more likely to be able to pay its debts. Subsequently, it took a £4.6bn hit in its profit and loss to represent the debt serviceability.

In the bank's report, group chief executive Stephen Hester said the fee reflects a "huge improvement in the perceived credit quality of RBS".

RBS is 81% owned by the taxpayer after it was bailed out by the government during the financial crisis. It endured a turbulent 2012, and received a £390m fine for its part in the Libor rate-fixing scandal.

Hester added: "In a tough economic environment, most of the banking industry's ongoing businesses are running hard to stand still, and so it was at RBS [in 2012].

"But the existing level of operating performance is essential to fund our historic clean-up with the moment coming ever closer when these costs are behind us and rewards flow directly once more to shareholders."

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