The purchase of ABN Amro was a major fraud.
Bloomberg:
Prime Minister Gordon Brown’s government tightened its grip on Britain’s financial system, guaranteeing toxic assets and giving the Bank of England unprecedented power to buy securities.
The Treasury authorized the central bank to buy 50 billion pounds ($73 billion) of assets and plans to raise its stake in Royal Bank of Scotland Group Plc to spur 6 billion pounds of lending. It’s also backing hundreds of billions of pounds of securities hurt by market turmoil.
Telegraph:
ABN Amro, a Dutch bank owned by the Royal Bank of Scotland (RBS), apparently lent Leonid Blavatnik the money to help shore up the finances of his troubled chemicals company LyondellBasell.
RBS is just one of the British banks being scrutinised by Government officials, alongside Lloyds Banking Group and Barclays, after lending to foreign nationals left them facing multi-billion pound losses which require another taxpayer funded bail-out.
Officials have discovered that the banks made the majority of their loans overseas, sometimes to companies and individuals whose ability to repay their debts was highly questionable.
FT:
“Almost all their losses are in subprime mortgages in America and related to the acquisition of ABN Amro. These are irresponsible risks taken by the bank with people’s money in the UK,” Mr Brown said, adding that the decision to buy ABN “was wrong”.
Marketwatch:
Royal Bank of Scotland shares tumbled Monday, losing over two-thirds of their value in a single session after the bank said it could report an annual loss of up to 28 billion pounds ($41.6 billion), the biggest in U.K. corporate history.
Like other U.K. banks, RBS has been hit hard by write-downs on risky assets, the virtual closure of wholesale lending markets and rising charges to cover customers who can’t keep up their loan repayments. But the bank’s woes have been made even worse by its acquisition of Dutch group ABN Amro, which added billions of risky assets to its balance sheet just as markets were peaking in late 2007.
The firm’s weakened position led to the government taking a 58% stake in the bank last year, a holding which could rise to around 70% after RBS also announced a restructure of its bailout package.
CEO Stephen Hester told analysts the bank’s 2008 loss will likely include a goodwill write-down of 15 billion pounds to 20 billion pounds, including the “vast majority” of the book value of ABN Amro. He also cautioned that further losses are on the way for the sector.
“We and all banks can be certain that there will be more significant losses as the recession flows through,” he said.
Excluding the goodwill charge, RBS faces a loss of 7 billion pounds to 8 billion pounds after further hefty charges in the fourth quarter.
The total loss could effectively wipe out the entire profit the group made over the previous six years.
