There is little discussion or analysis of what is happening at RBS amongst the political classes. This is surprising, as the size of RBS still swamps the public accounts. What RBS does is of vital importance to the future of the UK economy. Good assest management by RBS is crucial to avoid more taxpayer losses, and to get taxpayer cash back.
I thought it might be topical to look a little at recent RBS performance, After all, the bank has been in the news recently for its computer failures, and will doubtless be in the news again soon for the results of the enquiry into whether it had a role in the LIBOR fixing.
The stated aims of the bank are sensible. It aims to “serve customers well”. It aims to “restore RBS to a sustainable and conservative risk profile”. It aims to “rebuild sustainable value for all shareholders”. I have no great quibble with those. If asked, I would say the aims should be to pay the taxpayers back for the money they have put at risk, and to make a contribution to the economic recovery the UK needs. Any large UK bank also needs such a recovery if it is to prosper in the UK.
Customers probably feel a bit bruised by their bank after the recent problems with giving people their balances or letting them draw out their money, thanks to computer problems. I cannot recall a major bank getting into such a difficult situation before. The Group has apologised and recognised they let customers down. Doubtless more needs to be done to make sure it cannot recur, and to ensure that customers who lost out are properly compensated.
The balance sheet of the Group has been reduced substantially from its peak, and strengthened through government support and other actions. Some assets have been sold to comply with competition requirements. However, as at December 31 2011 the total balance sheet had gone up over the previous year to £1.5 trillion. This included an increase of £100 billion in derivatives held during 2011, taking them up to £530 billion. In the first quarter of 2012 they shrank the balance sheet again, to £1.4 trillion, cutting the derivatives assets by £77 billion. There are also substantial derivatives on the liability side. It is important these are reasonably balanced, reducing the risk of these large positions.
The bank showed total loans of £516 billion to customers at the end of 2011, compared to £555 billion a year earlier. This has fallen further in 2012. There have, of course, been asset disposals.
In 2010 the Group lost £1666 million. In 2011 the Group lost £1969 million. In the first quarter of 2012 the Group lost £1404 million. Administrative expenses rose in 2011 compared to 2010.
The remuneration of directors remains of interest to the taxpayer funding this bank. The directors are well paid. They also enjoy an annual incentive scheme with “a normal maximum incentive opportunity of 200% of salary (with an exceptional maximum of 250% of salary”.) They also may gain awards to a Long Term Incentive Plan with “a normal maximum of 400% of salary”. They receive an allowance in lieu of pension contributions. The CEO has said he is not taking his annual incentive payments this year.