Tuesday, May 12, 2009

Stock up despite big loss at British bank

One of the banks largely owned by the British government reported a loss of nearly $1.5 billion Cdn on Friday — and shareholders cheered.

The Royal Bank of Scotland said it lost 857 million pounds in the first quarter, but the stock price jumped 14 per cent in trading in London.

Investors were pleased that the bank, owned 70.3 per cent by the British government after a bailout last fall, was candid about its problems.

"Trust is a big feature in the banking sector at the moment. Anything that reinforces trust is well received," said Keith Bowman at British stockbrokers Hargreaves Lansdown.

The bank said it expects more writedowns, on top of the billions of dollars it has already declared.

There could be another $15.7 billion Cdn in charges over the next three quarters, chief executive Stephen Hester said.

"Some commentators are beginning to talk about economic recovery. We remain cautious and continue to plan and manage our businesses in the full expectation that both 2009 and 2010 will be very tough years for RBS."

The bank said it expects that very difficult economic conditions will increase non-performing loans.

But Bowman noted that "a 70 per cent plus gain in the share price over the last three months underlines investors' new-found trust in management and the bank's future."

On the other hand, Collins Stewart analyst Alex Potter was not as enthusiastic. "We assume RBS is loss-making for at least two years and see little meaningful profit before 2012," he said.

The first-quarter loss compared with a profit of $430 million Cdn last year.

The bank got into trouble after buying Dutch bank ABN Amro in 2008.

With files from The Associated Press