Revisiting the reasons you may not want to be working at RBS

10 October 2011

2 minute read

Revisiting the reasons you may not want to be working at RBS

As we pointed out on Friday, things are not looking good for RBS. It's starting to look seriously like the bank might need more capital.

The source of the concern is the Breaking Views Eurozone bank stress test model. As we pointed out last week, at a target rate of core tier one capital of 7% (as per Basel III) and with a 70% haircut on Greek debt and no haircut on Portuguese, Spanish, Irish and Italian debt, RBS needs €5.5bn, making it the most undercapitalized European bank behind the Greeks.

By comparison, Barclays looks comparatively healthy. Under the scenario above, it needs no extra capital at all.

The worst situation for RBS would be an increase in core tier one capital requirements and simultaneous writedowns in Greece, Spain, Portugal, Italy and Ireland. Under this scenario, it emerges as one of the banks most in need of capital. With 70% writedowns in Greece, 25% writedowns elsewhere and a core tier one capital ratio of 8%, RBS would need an additional €13bn.

Fortunately, no one is talking about 8% core tier one capital ratios. However, a spate of European Dexias may prompt their contemplation. Even at 7%, the situation doesn't look particularly great for RBS's participation in capital hungry activities like fixed income trading. Nor does it look good for RBS trading jobs.

As ever, RBS traders have their colleagues from ABN AMRO to blame for the situation they find themselves in. The Sunday Times pointed out at the weekend that before RBS bought ABN AMRO, it had assets worth around 870bn. After it bought ABN AMRO, it had assets worth around 1 trillion and, "significant sovereign exposure" to Greece.

AUTHORSarah Butcher

Global Editor

An
AnotherView
11 October 2011
1 - RBS was already over-exposed to all sorts of debt. Buying ABN AMRO made a bad situation worse. Hence, I don't believe the article above is entirely accurate.
2 - Both RBS and ABN had inadequate risk management strategies; they certainly trailed the industry before the crisis, which led to their demise, though RBS is playing catchup now.
3 - The talk in the industry is that while DB and GS will work you like a slave, the culture is more humane at RBS. That doesn't mean laid back; there is constant pressure to meet recovery milestones given it is a taxpayer bank. It just isn't the shark tank that other banks are.
Hope this clarifies.
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Poppela
11 October 2011
For god sakes! if it isn't UBS, it's RBS! there must be something better to write about Sarah? we all know RBS (and UBS for that matter) is the pots!
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Realitycheck
11 October 2011
Banks have to pay bonuses. If more capital is needed, the UK Government will provide for it
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To
Tony
11 October 2011
Yawn ... You are running out of material butch?
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The Competition
11 October 2011
Excellent, truly excellent use of UK taxpayer money. I am excited about the prospect of throwing more of it down the drain.
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