Bankruptcy

U.S. Banks Are Not Alone in Feeling the Pain

By Jason Kilborn

In yet another instance of "it's a small world," Royal Bank of Scotland yesterday posted the largest annual net loss in British banking history--£24 thousand million (US$34 billion). Like many U.S. megabanks, RBS (1) suffered from extreme investments in complex financial instruments, especially with its acquisiton of part of the Dutch bank ABN Amro, (2) lent heavily to consumers all over Europe in what I have heard are shoot-for-the-moon risk-fests similar to what we've seen from Citi and other U.S. consumer-heavy lenders, and (3) has already received a partial nationalizing investment (68%) and might be on its way to a full nationalization, all on the heels of impressive profits in 2007 (apparently, Citibank will likely remain only half-way nationalized). Notice that, while the U.S. discussion has focused nearly exclusively on the fallout from bad security investments (CMBS, CDS, CDO, etc.), RBS appears to suggest that significant losses will stem from "consumer loans." This makes me wonder how much pain from poor consumer lending (e.g., credit cards) big banks like Citi are managing to conceal behind the complexities of this financal crisis.

One line in the linked story particularly caught my eye: "The restructuring will leave the bank centered on Britain, with smaller, more focused global operations." This seems to be the approach du jour in many areas--abandoning wild-frontier global expansion and concentrating on familiar markets with more predictable risks (at least ostensibly more predictable). Is the world now no longer shrinking, but indeed expanding again?

Hat tip: Global Insolvency Daily News from ABI

Full post as published by Credit Slips on February 26, 2009 (boomark / email).