Royal Bank of Scotland could this week announce billions of pounds of fresh writedowns due to a further deterioration in the value of risky assets as the financial crisis deepens, analysts forecast. The forecasts for additional writedowns range from 1 billion pounds to over 3 billion pounds ($1.5 billion-$4.6 billion).
RBS wrote down 5.9 billion pounds in the first half and is expected to reveal more for the second half when it releases a prospectus for a capital increase. Shareholders will be offered 15 billion pounds of new shares, with the government buying any shares that investors do not want. The prospectus, due by the end of this month, is expected to be released on Friday.
Sandy Chen, analyst at Panmure, forecasts RBS will lose 6.8 billion pounds on writedowns and impairments in the second half, although that figure includes losses on traditional bank lending as well as structured credit. Analysts at Keefe, Bruyette & Woods last week estimated RBS will post another 2 billion pounds of writedowns, Cazenove has estimated the bank will take another 3 billion pounds, and Fox-Pitt Kelton is estimating 1 billion.
The new writedowns are likely to be focused on the structured credit portfolio, where values of securities linked to tarnished US housing assets have fallen in value. RBS declined to comment, but warned on October 13 that conditions had deteriorated and said its second-half profits would fall short of analysts' expectations.
"We expect that the deterioration in economic and financial market conditions may lead to a rise in impairment charges and further asset writedowns in the fourth quarter," the bank said then. By 1145 GMT, RBS shares were down 2.5 percent at 59.3 pence, while the DJ Stoxx European bank index fell 6.7 percent.
RBS is also expected to follow UK rival Barclays and raise funds from bonds backed by the government once its prospectus is released. Barclays raised 3 billion euros from the sale of three-year bonds and is the only bank to so far take advantage of the government guarantee, for which banks pay a fee to the Treasury. Strong interest in the Barclays offer - which attracted demand for over 4 billion euros of bonds and was placed with 167 investors - lifted optimism the bonds could help unfreeze funding markets blocked up during the credit crisis.