RBS

23rd February 2012

The bank has been hit by costs including a £850m provision against PPI mis-selling claims and writedowns on the value of its holding of Greek debt.

But what does this mean for investors? Is the bank on the road to recovery after the biggest bank bailout in history?

RBS led its peers higher on the stock market, on growing hope that the worth of the company's core business remained undervalued by its share price.

The stock rose 4.6% to 28.6p and the top of the FTSE 100, as hopes rose that the outlook for the stock would improve as the bank continues to slim its operations from the broad business model that brought it to its knees.

But aren't the bonuses still hefty?

Stephen Hester, chief executive of RBS, said the bank's bonuses were "pretty good value for the taxpayer" because they were needed to attract staff with the skills to return the bank to profitability. This, he argues, will set it on the right path.

"If you want an RBS that is mired in the past, a British Leyland, then we should be judged on a different basis," he said.

The bank would not be able to recruit people with the message "come here, have a harder job and earn less", he said. "We will not accomplish our goals if that is the message."

Asked whether bonuses could rise, Mr Hester said he hoped so, because it would indicate the bank was becoming more profitable.

However, there is no doubt bank recoveries have been made more difficult because the Government has announced new regulations in a bid to prevent a repeat of the financial crisis.

They will be forced to separate their retail and investment banking arms which will be expensive to implement and hit profits.

So is the mess being cleaned up?

Following the biggest bank bailout in history, the mess is, hopefully, slowly being dealt with.

The bailed out banks are now worth just over half the £1,000 per person cost of saving them.

RBS and Lloyds received a total of £65.5bn of taxpayers' money – but the Government stake is now worth just £36bn. The Government injected £45.5bn to take an 82% stake in RBS but those shares are today worth around £26bn despite a rising share price in recent weeks.

However, there are fears it will be years before the share price rises significantly and taxpayers can get their money back. Since 2000, the value of RBS  has fallen by 91%, reports This is Money.

What about giving shares directly to taxpayers?

Plans to give the shares directly to taxpayers to ease hostility about the pay enjoyed by bailed-out bankers are reported to have been ditched. This is due to the investments being considered too rocky.

To guard against future problems, the bank is holding more liquid assets, which can be sold easily during times of crisis, up from £90bn to £155bn, compared with a target of £150bn.

After all, there have been terrible returns

Three of the five largest UK banks have lost shareholders' money over the past decade. Little surprise, then, that shareholders remain angered by hefty payouts to chief executives.  

Analysis from The Motley Fool shows that last year was a truly terrible one for Britain's biggest banks. Take a look at this table for proof, which shows the share-price performance of the five large, UK-listed banks during 201.

This hurts investors. As members of the blue-chip FTSE 100 index, these shares are very widely held, often lying at the heart of many private-investor portfolios, managed funds and pension schemes, both here and overseas. They also have a chunky weighting in all Footsie-focused index trackers. The banking blowout of 2008 and 2009 has been extremely painful for small investors.

However, given the unsolved problems with eurozone sovereign debt share prices of both failed-out banks will remain highly volatile in 2012.

 

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