On the very day that the name RBS was consigned to the annals of financial history, the boss of the UK’s biggest business lender warned that while the painful memories of the last great financial crisis had faded, the true extent of a new and graver threat to thousands of businesses was emerging.
Alison Rose, the chief executive of the renamed Natwest Group said: “There are clearly tough times ahead. Not all businesses will survive and there are going to be losses”.
We got a glimpse of the potential scale of the losses earlier this year when RBS (as was) reported a nine-fold (833%) increase in the amount of money it set aside for bad loans compared to the same period a year ago.
New accounting standards require companies to make their best guess of future bad loans – so RBS’s best guess in the first quarter of this year was that bad loans would explode. We will get an update on their view next week.
Since that time, RBS has gone on to lend £10bn under various government schemes to businesses that they would not normally have done were it not for government guarantees, the vast majority of which were at 100%.
However, as Alison Rose was keen to stress – those guarantees are to the lender not the borrower.
If RBS predicts the default rate on loans rose by nine times on loans the bank was comfortable making without guarantees, how much higher will it be when that government backing meant the normal lending checks were accelerated or even effectively discarded?
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Given these loans are guaranteed, the financial problem is primarily the government’s (and therefore the taxpayer) but these are loans not grants and Alison Rose accepted that the high street banks will be the ones to be knocking on the door for repayment.
“It’s a very important point that we have made to businesses that they are 100% liable for repayment. We will be involved in collecting that money because they will need to pay it back but we will do that in a very considered and thoughtful way.” She added that a lot of businesses had secured the funds but many had not yet spent them.
The decade or so since the last crisis was the most painful in the nearly 300-year history of a bank that went from solid and dependable and trusted Royal Bank of Scotland (a brand its branches will retain in Scotland) to a by word for reckless expansion, hubristic leadership and, in some cases, the brutal and unethical treatment of its small business customers after the crash.
Ms Rose is determined to complete a transformation from that to a “purpose driven, financially sustainable bank that works for all its stakeholders”.
The name change may help to close the door on a horrible decade for a bank whose losses over ten years amounted to £60bn – wiping out am injection of £46bn in taxpayer money and then some.
The shares in TBFKARBS (The bank formerly known as RBS), or Natwest Group, are trading at one quarter of the value at which the taxpayer bought its shares.
We will probably never get that money back. That doesn’t mean it was the wrong thing to do. A failure of a bank whose assets were worth more than the entire UK economy would have taken that economy down the plughole with it.
Ms Rose insists that the bank will not airbrush events since 2009 out of its corporate memory: “We don’t want to forget the past, it’s important we remember those lessons”
New name. New crisis.