ROYAL Bank of Scotland will come under renewed pressure this week to declare its exposure to the global credit crisis.
With rival bank Barclays being forced to issue a denial on Friday that it was facing a $10bn writedown and management shake-up, the RBS board was being urged to declare its own position.
Rumours swept the City that RBS would have to shore up its
capital ratios by issuing equity, but the bank refused to make any public comments ahead of a routine trading statement due on December 6.
Shares in the two banks plummeted last week and if they fall further this week some believe they will be forced to make early declarations to restore confidence in the banking sector. Barclays will update the market on November 27.
Only a week ago Barclays was forced to deny it had gone to the Bank of England for emergency funding and this latest speculation, including a rumour that chief executive John Varley would step down, has only added to the nervousness now unsettling the markets.
Support for Barclays and RBS came in the shape of share buying by their own directors, including RBS chairman Sir Tom McKillop, but this did not halt the slide and the banking sector finished the week 9.4% lower. Barclays and RBS, which were rivals in the bid battle for Dutch bank ABN Amro, are down 25% since the end of October.
"An already nervous market is on red alert for any mention of credit losses and this rumour [of writedowns] has proved particularly unnerving at the end of a very difficult and volatile trading week," said Martin Slaney, head of spread betting at GFT Global Markets.
He added that if the rumours were true he would expect at least 15% of Barclays' value to be wiped away.
Barclays is exposed to losses as its Barclays Capital arm is the underwriter of many of the sophisticated derivatives that packaged US sub-prime mortgage loans. RBS also is a big player in the asset-backed securities field, and owns Citizens Financial, with 1,600 branches in the American north-east.
Both banks are also exposed to a housing market in the UK that is showing signs of slowing, though on an annualised basis prices are still up about 9%. David Buik at Cantor Index said he would have liked Barclays to update shareholders before its scheduled trading statement. "Markets remain incapable of coping with uncertainty," he said.
NCB Stockbrokers analyst Simon Willis agreed that a "fear of the unknown" was weighing on both Barclays and RBS. "After what we've seen from Merrill Lynch and Citigroup, anything could happen," he said.
Merrill took an $8bn sub-prime writedown and Citi has warned of billions of dollars more in writedowns. The chief executives of both have also stepped down.
As well as sub-prime exposure, Barclays and RBS have been big players in the leveraged loan market, Willis said. That market froze in the summer as the sub-prime concerns spread to other asset classes, leading some banks to take writedowns against loan portfolios that they were unable to sell on.
The full article contains 530 words and appears in Scotland On Sunday newspaper.
