RBS (RBS) News No Encouragement For US Banks

April 22, 2008 by Douglas A. McIntyre

Royal Bank of Scotland (RBS) will raise as much as $24 billion to bolster its capital position, a dubious record which US banks will not want to match anytime soon. The big UK bank will write-down close to $6 billion in bad assets and cut its balance sheet. The bank’s shares sold off on the news.

According to Bloomberg, RBS said it forecast was “inevitably clouded” by market turmoil sparked by the U.S. subprime mortgage market meltdown.

And, why not? Subprime mortgage failures are likely to rise this summer as more ARMs reset and homeowners lose jobs due to the recession. There is even news that people are torching their homes after they are evicted. Banks face a cascade of credit failures lead but the mortgage crisis spreading to the middle classes. A number of analysts believe that credit car defaults and car loan delinquencies have yet to hit financial companies hard, but that the issue will affect the market in the second quarter.

Will Citigroup (C), Bank of America (BAC), or any of the other large money center banks in the US have to raise $24 billion? Perhaps not. But, with more write-offs coming, it would not be surprising if among them the top 10 financial companies might have to bring in another $50 billion in new capital. NCC (NCC), a fairly modest player, needed to pull in $7 billion, and it does not operate on the scale of its larger peers.Some analysts believe that Citi has another $60 billion more in mortgage-related and CDO exposure.

US banks are not done raising money.

Douglas A. McIntyre