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RBS likely to post record loss

THE Royal Bank of Scotland is expected to post the largest ever loss by a British corporation and announce that it will offload toxic assets into a government insurance program when it reports its full-year earnings today.

Britain's second-largest bank, which is majority-owned by the government after it accepted bailout packages worth more than 20 billion pounds (US$29 billion), has warned that its full-year loss for 2008 could reach 28 billion pounds.

That figure is likely to include an underlying loss of 8 billion pounds, after the bank lost billions on the value of assets.

Analysts also expect RBS to disclose the terms of its participation in a government insurance program that is aimed at stimulating lending and jumpstarting the economy.

Under plans outlined by Treasury chief Alistair Darling last month, the government will charge a fee to guarantee around 90 percent of a bank's potential losses on assets such as mortgage-backed securities and consumer loans.

The plan should increase the capital strength of banks by reducing the risky assets they hold.

Analysts have speculated that RBS will put around 200 billion pounds of its toxic assets into the program.

As RBS has already flagged expected large losses to the market, the focus is on an anticipated restructure announcement by the bank.

Reports suggest that RBS will hive off large parts of its international operations to split its assets between core "good" ones to be held long-term and "bad" ones to be sold off in the coming years.

Collins Stewart analyst Alex Potter says shareholders would benefit from "transparency" on the creation of a division holding RBS's unwanted assets, making it easier for investors to value the bank

RBS' downfall in the wake of the global credit squeeze has been swift.

As recently as July 2008, The Banker rated it as one of the world's top banks based on its tier 1 capital.

Since then, RBS has been forced to take part in a government bailout that will give the taxpayer a 68 percent stake once formalities have been completed. Analysts have said the jury is still out on whether the bank remains a candidate for full nationalization.

The bank's chairman Tom McKillop and chief executive Fred Goodwin have resigned and issued a public apology for their roles in the once strong bank's financial downfall. But

McKillop earlier this month acknowledged that RBS' decision by buy Dutch bank ABN Amro in December 2007, while its investment banking business was heavily exposed to the complex financial instruments hit by the crisis, was a "bad mistake."

In an editorial piece in Wednesday's Financial Times, Darling said that Britain's banks must clean up their balance sheets and start rebuilding their operations.

"The task for banks is to clean up their balance sheets and rebuild for the future," Darling wrote.

"The challenge, for the government and for the banks, is to do this against a background of a sharply deteriorating global economy."

The Treasury is also negotiating terms of the program with Lloyds Banking Group, which reports on earnings on Friday. Barclays also is reportedly interested in the program.

The Financial Times reported that negotiations involving RBS and Lloyds have focused on the fee for insurance, which could be up to 6 percent, and how much of a loss the banks would have to absorb before claiming against insurance.


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