RBS reports massive write-downs

The UK’s second largest bank reported its first loss in 40 years as it wrote
down the value of many of its credit market assets by £5.9bn.

The bank reported a pre-tax loss of £691m in the first half of this year
compared with a profit of £5bn a year ago, but the loss was smaller than the
£1.2bn expected by City analysts.

The group’s non-performing and potential problem loans at 30 June represented
1.47% of loans and advances, slightly lower than at the end of 2007. Its
provision balance at the end of June totalled £5.0 billion, covering 56% of
non-performing loans.

Group chief executive Sir Fred Goodwin described the first half of this year
as one of the most ‘difficult’ environments the bank had seen for some time.

‘The results demonstrate progress in a number of important areas, and it is
all the more unsatisfactory, therefore, that they record a loss as a result of
our credit market write-downs,’ he said.

The write-downs were offset by a £812m reduction in the carrying value of the
bank’s own debt held at fair value.

‘We have been actively reducing our credit market portfolio, disposing of a
number of holdings at prices that have often been higher than we had estimated
in April,’ said Sir Fred.

The bank reduced its leveraged finance portfolio from £14.5bn at the end of
2007 to £10.8bn at 30 June, and last month sold another £1.25bn of leveraged

‘While these leveraged disposals have been at better prices than we had
assumed in April, we have increased the credit valuation adjustment on our
exposures to monoline insurers as credit spreads have widened,’ said Sir Fred.

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