Looses from provisions for mis-selling financial products, the recent IT failure and £2.9bn accounting loss on value of its own debt
Royal Bank of Scotland Group (RBS) has reported a loss of £1.5 billion for the first six months of the year as mis-selling of financial products and the cost of last months IT failure mount up.
The first-half loss was nearly double the £794 million loss reported for the same period last year and takes the group's total losses since the 2008 banking crisis to £32.5 billion.
Pre-tax losses in the second quarter were £101 million against a loss of £678 million for the second quarter of 2011.
RBS has made a £125 million provision to cover the cost of its IT failure in July, which left millions of customers unable to access their accounts, and RBS admitted today it may face further costs linked to this.
A further £135 million has also been set aside to cover payments for mis-sold payment protection insurance (PPI), taking the total bill for PPI to £1.3 billion so far.
RBS, which remains more than 80 per cent taxpayer owned, also posted a first-half accounting loss of £2.97 billion - £518 million in the second quarter - linked to fluctuations in the value of its own debt.
The bank had previous reported a £2 billion profit in the third quarter of 2011 from the same accounting gimmick in which the bank bought back its own debt at discount after its credit rating was slashed, and then booked the price between the lower and book value as a gain.
Stripping out accounting losses and other provisions, RBS' operating profits dropped 22 per cent in the first half to £650 million against £833 million last year.
Revenues for the six months to June 30 fell eight per cent on last year to £13.2 billion.
Bad debt charges fell 40 per cent to £2.64 billion and total eurozone exposure dropped eight per cent to £218 billion.
The taxpayers' £45.5 billion stake in RBS has nearly halved in value, with £26 billion wiped out in that investment to date.
RBS has also set aside £50 million to cover compensation claims linked to sales of 'interest rate swaps' to small businesses.
Earlier this week, RBS lost a landmark case at Dublin High Court relating to RBS subsidiary Ulster Bank having sold Dublin-based property developer David Agar €87 million (£68.4 million) of interest rate hedging products – derivatives - linked to a €47 million (£36.9 million) property loan.
RBS is reported to have agreed to write off derivatives and loans worth €30 million as well as paying Agar's €1 million (£0.79 million) in legal costs in the settlement.
Regulator the Financial Services Authority (FSA), estimates at least 28,000 small to medium-sized businesses in the UK were sold interest-rate swaps since 2001.
These products, designed to allow businesses to hedge against a rise in interest rates, are currently under review as part of a wider FSA investigation into mis-selling in which RBS, HSBC, Lloyds and Barlcays have already agreed to compensate customers.
RBS is also bracing itself for significant fines to be levied by US and UK regulators for its role in rigging the interbank lending rates.
However, the bank has made no provision for potential fines in its first-half results.
RBS is one of 16 banks currently being investigated for rigging the London InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR), the two most important benchmark interest rates in global markets.
In an interim statement posted today, RBS said: “Certain members of the group have been named as defendants in a number of class actions and individual claims filed in the US with respect to the setting of LIBOR.
“The complaints are substantially similar and allege that certain members of the group and other panel banks individually and collectively violated US commodities and antitrust laws and state common law by manipulating LIBOR and prices of LIBOR-based derivatives in various markets through various means.
“The group considers that it has substantial and credible legal and factual defences to these and prospective claims.
“It is possible that further claims may be threatened or brought in the US or elsewhere relating to the setting of interest rates or interest rate-related trading.”
Impairments at its Ulster Bank division were £1.2 billion compared with £2.5 billion in the first half of 2011.
Ulster Bank made a trading loss of £555 million in the first half, up £12 million on the same period last year.
Assistance to Ulster Bank mortgage customers - forbearance treatments – are now running at 10 per cent of total mortgage assets, £1.9 billion, up from nine per cent at December 31, 2011.
These forbearance agreements are one to three-year deals which incorporate different levels of repayment based on customers' ability to pay.
RBS said the majority of forbearance agreements – 79 per cent – are in the performing book and not 90 days past due, though 44 per cent were for interest-only conversions and eight per cent accounting for payment holidays.
And the RBS insurance division, Direct Line, which is to be spun-off in a stock market float, has reported a six per cent rise in operating profits to £219 million, despite reporting £40 million in weather-related claims in the first half.
The insurance division, which includes the Churchill and Green Flag brands and the broker business NIG, is subject to a forced sale imposed by the European Union in return for RBS' £45.5 billion taxpayer-funded bailout.