RBS slumps to loss after $1.35 billion writedown

Fri Aug 8, 2008 3:51am EDT

By Steve Slater and Clara Ferreira-Marques

LONDON (Reuters) - Royal Bank of Scotland fell to a first-half loss of 691 million pounds ($1.35 billion), one of the biggest losses in UK corporate history but not as bad as expected, after taking a 5.9 billion writedown on the value of risky assets.

RBS, Britain's second-biggest bank, said the loss was "a chastening experience" but it was on track to rebuild capital and sales of assets was going as planned.

Fred Goodwin, RBS chief executive, said on Friday the bank was talking to "a number" of potential buyers for its insurance arm, which is valued at 5-6 billion pounds, but he is not reliant on a sale to reach higher capital targets.

By 3:30 a.m. EDT RBS shares were up 2.4 percent at 238 pence, one of the top performing UK stocks, which analysts attributed to a better than expected capital position and resilient underlying results.

The bank swung to the loss from a 5.1 billion pound profit a year ago after being hit by the writedowns on credit products, in line with previous guidance but partially offset by an 812 million pound reduction in the value of debt it carried.

It had been expected to report a 1.2 billion pound loss, based on the average of five analysts' forecasts.

Goodwin said difficult conditions in financial markets "look set to be compounded by a deteriorating economic outlook".

The bank said bad debts on mortgages and other loans jumped 58 percent in the six months to 1.5 billion pounds.

HARD HIT

RBS has had a troubled year and in June it was forced to raise 12 billion pounds in the biggest ever rights issue, to repair a balance sheet stretched by last year's purchase of parts of ABN AMRO and the writedowns.

Asked if he was the right person to lead the bank after some calls for him and his chairman to step down, Goodwin said: "I'm very focused on what we're doing here. We're focused on doing what's right ... to steer the business through a difficult time."

RBS has written down over 8 billion pounds and has been one of the hardest hit banks, but it is not alone.

A year into the credit crunch, banks have written down over $400 billion of assets tarnished by the U.S. subprime housing crisis, forcing them to raise billions from their own shareholders and outside investors.

RBS said its core tier 1 capital ratio was 5.7 percent at the end of June and will be above 6 percent by the end of the year, even if it does not sell its insurance arm.

"Insurance is for sale, we would like to conclude a sale and we believe our disposal process is on track," Goodwin said. "But if we don't get the value we are looking for we are not going to sell and we are fairly confident of meeting our capital targets."

RBS said its underlying profit fell 3 percent to 5.1 billion pounds.

(Editing by David Cowell)