I am pleased to announce losses of £28 billion from our recently acquired RBS subsidiary and £1.4 billion for Northern Rock, acquired over a year ago. These losses are a pleasant surprise, as we did no due diligence before the acquisitions and were therefore unsure of just how big the loss making potential of these talented concerns might be.
We will be announcing these results to the markets at some point in the future, but our 7 by 24 news mangement requires me to write to all of you about them now they are generally known in the media, with added explanation to give them some news traction. I have decided they do not need to be the subject of an oral statement in Parliament, as our investments in subsidiaries are held at arms length.
One of the most pleasing features is the consistency of the results. UK shareholders may recall that RBS is twenty times the size of Northern Rock, and has come in with exactly twenty times the size of Northern Rock’s losses. This shows the skill of all involved in crafting these losses, despite the two banks running on very different strategies over the time period in question. I am sure you will agree we should pay bonuses to those involved. Northern was in run off, under orders to reduce its activities, whilst RBS was asked to increase lending to 2007 levels. For the coming year we are recommending both banks run on the same strategy, lending more money, which should make it easier for them to continue their welcome consistency.
The management of RBS has proposed splitting the assets they currently own into good and bad assets. The idea would then be to commit the taxpayers fully to the bad assets, and leave our experienced subsidiary to trade through the good assets that remain. I was at first concerned about this suggestion, given our corporate aim is “Nationalisation puts the losses back into British business”. However, I have been reassured by the thought that we could always change the accounting procedures to make sure we do record the losses people expect of a nationalised activity. I should also point out it is not that easy distinguishing a loss making from a profit making asset in these conditions, so even a “good bank” can end up losing money.
As we have now written off substantial sums there is always the danger of a profit appearing. We will seek to expand our lending to try to avoid this happening.