Loughtanian's of LSE take on earnings report:
"HL Comment (24 February 2011)
Part nationalised Royal Bank of Scotland published its full year results today (24th Feb 2011). The group, which is two years into a five year plan to restore the bank into good health, posted a net loss of £1.1 billion which was an improvement on the £3.6billion loss the bank made in 2009, and the £24.3billion loss in 2008. The improvement was driven by a sharp fall in losses on bad loans over the year, a resilient performance by its retail commercial businesses and a faster than expected reduction of non-core assets. Most of last year's loss was due to a large exceptional charge of £1.1 billion under the government's asset protection scheme, which is an insurance plan to protect banks from losses generated by high-risk assets. Stripping out this charge and restructuring costs the bank delivered an operating profit of £1.9 billion turning round a £6.1 billion loss a year ago. The bank made progress on the complex disposal of non-core assets where RBS is selling or winding down £250 billion of assets. It cut the portfolio by £63 billion or 37 per cent. Summarizing the results management said "We are still a good way from where we want to be in terms of our performance but 2010 represents another big stride towards that goal."
Negative Points:
The bank’s recovery remains dependent on a sustained economic recovery.
The creation of an Independent Commission on Banking to consider structural, financial stability and competition provides a degree of uncertainty towards the bank’s recovery.
Loan impairments within the group’s Ulster business rose almost 80 per cent last year and losses at the division more than doubled to £761million.
Like its investment banking peers, the group’s own investment banking operation suffered a 28 per cent fall in revenues.
No resumption of the dividend is yet in sight.
The government owns an 83 per cent stake in RBS after bailing the bank out during the financial crisis of 2008.
As a result of the government bailout, RBS was ordered by European regulators to dispose of a range of assets by 2013, including its insurance division.
Positive Points:
The government has said it will sell its 83 per cent stake in RBS, but is unlikely to do so until the Independent Commission on Banking reports its findings. An update is due in March with the final report to be published in September.
The bank is two years into a five year plan. The improved overall performance should assist the group’s preparation for a return to private ownership.
Investors will take comfort from evidence that bad loans at the bank are falling steadily and the core UK retail business is recovering.
The group plans to sell its ailing insurance arm in 2012. The division, which includes major insurance brands such as Direct Line and Churchill, made losses of £295 million as it incurred soaring injury claims and a &#"
