Relief as RBS credit crunch loss is tipped to be 'manageable' sum

ROYAL Bank of Scotland is expected to take a hit of between £1bn and £2bn as a result of the credit squeeze but will tell the markets this week that it remains on course to report profits close to £10bn.

The bank's relatively limited exposure to underperforming investment vehicles is likely to ease nerves in the banking sector, which had feared a bigger impact on the RBS balance sheet.

Analysts will see the figure as manageable and unlikely to knock RBS off course as it concentrates on the integration of those parts of Dutch bank ABN Amro which it acquired with Santander and Fortis. A trading update is due on Thursday when RBS chief executive Sir Fred Goodwin is expected to reassure investors that the merger process is going to plan and that there are no hidden surprises.

RBS has said nothing on its exposure to the weak credit market despite pressure on all banks to disclose any setbacks prompted by the crisis in America. Analysts admitted they were largely in the dark about what to expect from RBS, which is known to have some exposure to asset-backed securities, or bonds that are based on pooling a number of assets.

One said: "Undoubtedly there will be some damage, it's a question of how much and we have seen varying degrees of write-downs. But it won't be life-threatening for RBS, probably more annoying and embarrassing."

The markets, however, remain on tenterhooks as the full extent of the credit crunch unravels. The problems were so deep-rooted at Citigroup and Merrill Lynch that their chief executives resigned.

In the UK, Barclays revealed a lower than expected write-down and said that profits would meet expectations. The mortgage banks Alliance & Leicester and Bradford & Bingley eased tensions last week by saying they were able to meet their funding requirements, though few were aware of their exposure to sophisticated funds such as structured investment vehicles.

Mike Trippet, an analyst at Oriel Securities, said he did not expect RBS to shock the market: "It is difficult to quantify [the write-down]. My hunch is that it will be something manageable along the lines of Barclays."

The markets appeared to expect something similar as RBS shares closed up 15.75p on Friday at 459p, almost 21% up on a week ago.