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RBS reports massive half-year loss following Greek debt exposure

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rbs06The Royal Bank of Scotland, which is 84 per cent owned by the UK taxpayer, has become the latest to fall victim to the Greek debt crisis. RBS reported a half-year loss this morning after writing down £733m of Greek government bonds. The bank had lent money to the Greek government and now acknowledges, like many other European banks, that the money may now not be paid back in full. RBS reported after-tax losses of £1.4bn for the six months to 30 June. Like Lloyds yesterday, it has also had to make provision to cover claims for the mis-selling of Payment Protection Insurance (PPI). RBS allocated £850m for this, compared with the £3.2bn Lloyds said in May it was putting aside to cover issues with PPI. RBS is the latest European bank to be hit by the ongoing financial crisis. In France, the Société Générale has already issued a profits warning, having seen a dramatic fall in its profits for the quarter to €747m (£652m), down 31 per cent from this time last year. The largest French bank, BNP Paribas, had said it has set aside €534m over the Greek rescue plan, while Crédit Agricole confirmed that the crisis could hit its to second-quarter results by €850m (£738m) when it reports second-quarter results shortly. Italy's biggest bank, UniCredit, reported that it wrote down €105m (£93m) on its portfolio of Greek bonds. In Belgium, Dexia reported that it had been affected by its Greek exposure to the value of €377m (£327m). The bank has acknowledged that it holds €1.8bn in Greek government bonds. In Germany, Deutsche Bank has written down its assets by €155m (£135m) over its exposure to Greek government bonds. And analysts expect Commerzbank to write down more than €700m (£608m) of Greek sovereign debt when the bank reports its the second quarter results next week. Speaking this morning, the chief executive of RBS, Stephen Hester, urged markets to “stay calm in the face of turbulence”, adding that “we should be calm but we need to be purposeful. We are at a serious point in the markets and serious point in the growth cycle.” The change in the bank’s fortunes is already having an impact on the taxpayer. The British government’s stake in RBS is massive after it spent £45bn to prop up the bank. This time last year, RBS shares were trading at just over 51p, giving the taxpayer a reasonable paper profit. But this morning, the share price dropped to under 26p, turning that profit into a substantial paper loss. This follows a similar pattern yesterday with Lloyds. Its shares had to be suspended in early trading after falling more than 10 per cent. The UK government's 41 per cent stake had been worth around £11bn but the dramatic fall in the share price meant that its value had dropped to £9.67bn, a loss on the day of about £1.1bn. The share price recovered somewhat this morning – but only to about 35p. Lloyds chief executive, Antonio Horta-Osorio, had called the group’s performance “resilient”, adding that he thought it had made “substantial progress” since the start of the year. At least the bank has limited exposure to the struggling Eurozone countries. Its exposure to the five PIIGS states, (Portugal, Italy, Ireland, Greece and Spain), plus Belgium, totalled £189m. Despite the turmoil in the banking sector, the British Bankers' Association (BBA) has insisted that the banks were “on track” to meet their overall lending commitments despite what it claimed were difficult economic conditions. The BBA said that the five key UK banks had delivered £100.4bn in new lending to UK businesses during the first half of the year, including £37.4bn to SMEs (small and medium enterprises). In a statement released this morning, the BBA said that “The banks’ efforts to encourage customers to come forward with borrowing proposals are set against the overall economic environment which remains challenging and business demand for credit which remains weak.”

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