At year end – translated to USD at year end exchange rates – RBS total balance sheet footings were USD3.8 trillion. Citigroup – a mere bagatelle – was “only” USD2.2 trillion. The putative Japanese giant (MUFJ) was only USD1.9 trillion.
Admittedly RBS consolidated the interests of
So what?
The so-what is obvious.
In times of a credit crisis – when seemingly safe AAA rated assets are defaulting – big balance sheets are likely to have big problems.
They do – and the stock price is telling you. RBS stock is startlingly weak. The company however seem to believe everything is fine – and only miniscule charges have been taken.
The board is ineffective and unable to control the charismatic CEO. They should also resign.
The Bronte Capital Blog plan
Delusion part 1: RBS’s US Home Equity Line of Credit (HELOC) Business
Click here: FFIEC top 50 bank holding companies
The bank orginated (and still originates) HELOCs out of those branches. It has (and you will need to follow the statutory filings to their source data at the FDIC) 11.0 billion of mortgages secured by second liens and 9.3 billion of HELOCs (as at year end 2007).
They are still originating them and to date their provisions against them are trivial. The management still think this is good business.
This is however arguably one of the worst HELOC businesses out there. It was aquired with Charter One.
I will play a game with you. Lets follow this link and buy some houses.
Click here: Real estate search Toledo Ohio
In Toledo the houses don't cost much.
Now lets look where RBS is originating the loans. Here is a Google Map of the location of Charter One branches in Toledo.
Am I being unfair picking Toledo? After all Toledo is where the bankrupt auto parts company (Dana) has its operations.
So where is RBS on all this?
Answer: delusional. They have taken no charges and all the goodwill from the Charter One acquisition remains on RBS's balance sheet unimpaired.
But worse than delusional. The head of RBS's US business (Larry Fish) wrote an editorial in the Washington Post in December 2007 in defence of subprime lending. Here is the link:
Larry Fish defending subprime lending in the Washington Post in December 2007 - ie after it all blew up
You work out what planet he is on. It is hardly the same one as me.
And Fish is no lightweight. He is an executive direcctor on the board of the biggest bank in the world - the parent board.
Summary: It is time to sack the lot of them
Disclosure: RBS is big, problematic and cheap. I am neither short nor long. Because it is so big and so cheap it looks a little like buying Citigroup in 1992. I would prefer be long than short. However with this delusional management team in place – I am just watching (and blogging) from the sidelines.
3 comments:
check out ebay for Fred the Shred voodoo dolls - I've ordered three!
Read this because of your recent post. Reminds me of Graham's comment about how liabilities are usually real (or more than real) but the assets are usually not real.
prescient.
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