RBS due £400m IFRS hit

Market watchers should get an indication of the impact of international financial reporting standards on the Royal Bank of Scotland when it reveals its 2004 results tomorrow.

Link: Bank of England wades into IAS39 debate

RBS has already forecast that IAS32 is expected to have a strong influence on the bank’s results, causing a £400m drop in its 2004 operating profit.

The standard will reclassify as debt certain capital instruments currently treated as preference shares or non-equity minority interests.

In addition, earnings per share should fall by 2-3% under IFRS, though basic earnings per share should see a rise of 10% as goodwill will no longer be amortised.

RBS is scheduled to provide a full 2004 IFRS restatement in the second quarter of this year, but has released estimates ð- rounded to the nearest £50m -ð of how it expects IFRS to impact on the group’s earnings.

Tomorrow’s results will provide the first benchmark against which the bank can best measure its estimates.

IFRS3 has been estimated to give RBS a £900m boost, after the removal of goodwill amortisation in favour of a new regime that forces companies to go through an annual asset valuation.

The bank will announce confirmed figures on how its switch to FRS17 will impact on its accounts.

Major swings in shareholders’ funds and pre-tax profits are expected because of FRS17, which changes how retirement benefits are accounted for. A restatement of RBS’s 2003 financial statements to include the new accounting policy saw a £2bn drop in shareholders’ funds. Pre-tax profit, however, increased by £135m.

RBS’s announcement will also give an indication of whether FD Fred Watt will qualify for a bonus worth 200% of his £531,000 salary. In its 2003 annual report RBS disclosed that directors delivering ‘exceptional performance’ would qualify for the bonus.

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