RBS – Banking By Numbers

Like it or not, you are an 81% shareholder in Royal Bank of Scotland. So the publication of their 2013 annual results is important on many levels.

 

Here’s all you need to know in numbers……

 

RBS made a loss of £8.2 billion during 2013. This is the 5th largest corporate loss in history (the biggest was £24 billion – also made by RBS).

 

Bonuses of £576 million have been paid to bank employees on the back of these results.

 

The Government bailout of RBS cost us £45 billion in 2008.

 

RBS have reported no profits and total losses of £40 billion since 2008.

 

RBS are currently worth £40 billion based on market capitalisation.

 

There is no prospect of any return prior to 2020.

 

I have looked at this objectively from many different angles but I cannot get beyond……what was the point of the bailout?

 

The numbers don’t lie.

 

RBS Spinning

Whether we like it or not, the Royal Bank of Scotland is a big deal.

 

For starters, it employs 100,000 people directly and no doubt feeds many other families indirectly that supply its many services, departments and branches.

 

Secondly, it is a key player in economic recovery as we are reliant on it to lend to consumers (personal and business) to spend. In a consumer driven economy, giving consumers money to spend is always key!

 

Thirdly, the public own 80% of RBS and we want a return on our investment.

 

Which makes the ‘strategic announcement’ to be made by the RBS chief-executive (Ross McEwan) this Thursday all the more intriguing. If you are charged with making us money, that makes you by definition a big deal in the taxpayer world.  

 

However, when you use Government tactics to manage public perception, it simply leaves some head scratching to be done and suspicion on every level.

 

What do I mean? Well, to limit ‘jolts’ to RBS’s share price, the theme of the announcement has been leaked in time for opening time of investment markets today. Not just the Government that likes to spin!

 

Would it surprise you if I suggested that the RBS board have salary / bonuses linked to the share price in addition to share options where the share price is critical? Sad but true.

 

With RBS to also announce profit / loss for Quarter 4 of 2013 this week as well, expect to be at very best underwhelmed and at worst flabbergasted that there is little prospect of returning a profit to us in the short term.

 

After 5 years since the bailout, should we not be expecting a little more?

 

 

Flowering Exception

I thought you might like a bit of an update on the Co-operative pantomime villain Paul Flowers. The link below will provide you with your 60 second recap……

 

http://stevesmithlive.blogspot.co.uk/2013/11/co-operative-flowering.html

 

Well the first thing to mention is that it was ‘gentlemen’ of the night not ‘ladies’. Sincere apologies for misleading.

 

Secondly, Paul Flowers no longer sits on Ed Miliband’s Labour Finance Advisory Group. You don’t want a loose cannon within a non-safe distance leading up to a General Election now would you!!!!!

 

Thirdly (and least surprisingly), nobody has / wants to take any responsibility for originally awarding Paul Flowers a ‘fit and proper’ person to run a banking institution in the UK. What is surprising though is that the Supervision Director (Clive Adamson) at the regulator has stated he has “no regrets” and “it wasn’t a mistake”. Really? Exactly which part wasn’t a mistake? 

 

Well, I was brought up to take responsibility for my actions, admit mistakes and learn from them. I naively assumed that others do the same but it appears there are too many in politics and financial regulation who don’t. What a shame……we would be a far better country for it.

 

I’ll just add it to the list of disappointments we ‘accept’ from those that represent us.

 

Monitory Policy U-turn

OK, let’s get straight to the point and round off all this nonsense……key headlines from yesterday’s announcement……  

 

Bank of England Governor Mark Carney has done the decent thing and announced yesterday that the measure for determining interesting rates will be ‘adjusted’.

 

Originally the measure was the rate of unemployment but it will now include “a wide range of factors”. Exactly what it should have done in the first place.

 

Carney warned that the UK recovery was not secure and that when rates rose, they would do so only "gradually".

 

Interest rates are unlikely to rise before next year’s election.So there you have it……the lobbying worked and the Bank of England took the embarrassing decision to perform a monitory policy u-turn. The big winners should be the housing market, businesses and panicking homeowners.

 

Our work here is done……well except some egg on the face of a few to be wiped off.

 

 

An INTERESTing Fix

I wrote 2 weeks ago on the storm that had been created by the Bank of England and the threat of significant interest rate rises……simply due to their flawed system. The link is below if you want a 2 minute reminder.  

http://stevesmithlive.blogspot.co.uk/2014/01/not-interested.html

Since then, the financial world has gone a little crazy……and dare I suggest some panic has set in.

Homeowners have been rushing to change their variable rate mortgages to long term 5 year fixed rates as the real threat of interest rate rises strike fears in the pocket of many households. With 75% of all homeowners on a variable rate mortgage, this was always going to happen.

The Bank of England is firmly of the view that the UK's economic recovery will not be entrenched unless households and businesses are convinced that interest rates will remain low for months and years……brilliant. Yet, a flawed system is being used to set interest rates, which creates real panic that rises will be forthcoming shortly……catastrophic. 

At best this is just another confusing contradiction……at worst it is a damn right mess with huge consequences. 

Well it appears that the lobbying from all angles has been heard and a solution to fix this is not far away……and all will be revealed by the Governor (Mark Carney) tomorrow.

Don’t expect a climb down, apology or any egg wiping from faces……simply expect some ‘modifications’ to the criteria used to set interest rates. It’s action nonetheless and it should stop short term concerns which can only help the longer term recovery.

And that just leaves the ‘reputational disaster’ for Mark Carney and the Bank of England to repair!

Property Perspective

If you listen to all the hot air coming from the mortgage and property market (you can throw in the Government as well), you would be forgiven for thinking that house prices have trebled in the past month and we are on the verge of another property boom.

 

Well, let’s just have a small slice of perspective for elevenses today shall we? 

 

Mortgages

Hard facts time. Total mortgage lending in 2012 was £143 billion and £157 billion for 2013……a modest rise of 10%. However, to put this into perspective……this is only half the level of total mortgage lending of 2007 (pre-banking collapse). Hardly ‘boom time’ statistics.

 

House Prices (A)

The graph below highlights that house prices have risen over the last year……but they are still well below the 2007 peak.

 

 

House Prices (B)

The region in which you live also impacts on the figures above, as they include a country within a country……namely London. The latest figures from the Office for National Statistics stated that the average property price in London increased by 12% in 2013 compared with 5.5% for the whole of the UK. Point made me thinks.

 

In summary, let’s be pleased that there is positive news in the property world as we have so much of our personal wealth tied up in it collectively. However, let’s not create a boom and bust bubble……we are still paying for the last one and lessons are still being learnt.

 

Reality check done.