IT and mis-selling losses hit RBS

The Royal Bank of Scotland is majority-owned by the UK government. (File)

Story highlights

  • RBS's pre-tax losses for the half year were £1.5bn
  • The bank has been hit by losses caused by mis-selling scandals and last month's technology meltdown
  • It posted a pre-tax loss of £101m for the second quarter of 2012, an improvement on the same period last year
  • RBS has not yet made any provision against the possible cost of the Libor affair

Royal Bank of Scotland was on Friday hit by a fresh wave of losses caused by mis-selling scandals and last month's technology meltdown.

It disclosed that it had sacked staff following internal investigations into the Libor scandal that has thrust part of the industry into another regulatory quagmire.

RBS, majority-owned by the UK government, posted a pre-tax loss of £101m for the second quarter of 2012, an improvement on the £678m loss reported for the same period a year earlier.

The deficit was primarily caused by a £518m accounting loss linked to fluctuations in the value of its own debt and derivative liabilities.

However, it was exacerbated by a £125m provision against costs arising from the computer systems failure, which caused a payments backlog. Additional costs could arise from the incident, RBS added.

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It had to earmark £50m to compensate small and medium-sized businesses that were mis-sold interest rate swaps. This follows a settlement in June between the Financial Services Authority, the City watchdog, and four UK banks: RBS, Barclays, Lloyds Banking Group and HSBC.

RBS had to earmark another £135m in its second-quarter figures to cover the cost of compensating customers who were mis-sold payment protection insurance, a once-lucrative form of loan cover that has come back to haunt the industry.

The bank has not yet made any provision against the possible cost of the Libor affair. Barclays has already been fined £290m for manipulating submissions used in calculating Libor and Euribor, another benchmark interest rate.

However, RBS said it had dismissed an unspecified number of employees for misconduct as a result of its own investigations into the matter.

Stephen Hester, chief executive, said: "The Libor situation is on our agenda and is a stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have in terms of financial and reputational impact."

Operating profit -- which excludes the distorting "own debt" accounting loss, as well as most of the provisions -- was £650m, down 22 per cent from the £833m posted a year earlier.

RBS's pre-tax losses for the half year were £1.5bn, compared with a loss of £794m for the same period last year. Operating profits were £1.83bn, compared with £1.97bn.

RBS shares rose 1.2 per cent to 206.9p in early morning trading in London on Friday but remain 36 per cent down over the past 12 months.