A whopping pension hole in the future, and whopping liabilities that aren’t in the past

Well, as you’ll recall, Banco Espirito Santo (BES) was in fine fettle really last month, but by Friday afternoon last it needed a €4.9bn bailout. By this morning, the sum had reached €6.6b, and good bank v bad bank had been applied. Before long, no doubt, the usual measure applied to these matters will double that number, and wipe out the equity. Then we can start wondering how the bailin will operate.

Except in this case, the out/in thing is already blurred: the senior creditors and the taxpayers will be spared (allegedly), leaving only the shareholders and junior bondholders to enjoy the delights of Bad Toxic Bank (BTB).

It’s all gibberish with a dash of gobbledygook, of course. If the taxpayers have already coughed up the best part of five billion euro, how exactly are they being spared? And what does ‘senior’ creditor mean? We don’t know yet, but I have a suspicion it doesn’t refer to ageing folks who just saw their investments wiped out….no, I rather fancy those folks will turn out to be the junior bondholders – as indeed they did during the Coop Bank fiasco-cum-fraud in the UK. I’d also hazard a guess that these juniors are also major-league taxpayers.

But it’s all tickerty-boo really, because it just so happens that the EU and IMF had €6.4bn euro hanging about left over from the Portuguese bailout the way you do) so nobody paid for anything really. Except, er, the EU taxpayers whose currency slid down the pan to bail out ClubMed after 2010.

Who are the shareholders of BES then? Um, I hope you brought the JCB: BES is 25% owned by Espirito Santo Financial Group, which is 49% owned by Espirito Santo Irmaos SGPS SA, which in turn is fully owned by Rioforte Investments, which is fully owned by Espirito Santo International….andonandonandon.

We have a slight branding problem with BES now, and so the Good Bank will be relaunched as Novo Bank (bet they spent all night dreaming that one up) which rather aptly gives us the abbreviation NB. So take note readers, IABATO applies: it’s all bollocks and that’s official.

From the BES mess to more RBS stress.

For several years now, The Slog has persisted in pointing out RBS’s undisclosed exposure to highly dodgy Russian debt. Note how the Ukraine situation has given the bank a Heaven-sent opportunity to announce it has ‘cut lending to Russia and imposed credit restrictions as the US and EU crank up sanctions against Moscow’.

However, although the bank put its total exposure to the country, including assets held by clients, at £2.1bn, it also has “uncollateralised derivative positions” with certain Russian banks. And an awful lot of mortgages on properties that may or then again may not exist, as such.

The RBS halfyear results show a profit before tax that’s up, but the explosive nature of the bank’s potential failure remains the huge, white Bull Elephant in George Osborne’s Room101. The lads at RBS are continuing to deny the existence of 6000 SME claims for fraud dating from the Hester era, at the same time as they put some Bandaid over the Russian black pit of despair. But here’s another little nugget spotted by the Slog: its pension fund.

The hole here is, apparently, a whopping £5.6bn. Almost a BTB, in fact, although the helpful information issued in quarter-point flyshit by RBS last week calls this ‘the scheme’s liabilities minus the value of its assets’. You have to laugh, but you’ll almost cry on reading this:

‘….To eliminate this deficit, RBS will pay annual contributions of £650m from 2014 to 2016 and £450m (indexed in line with inflation) from 2017 to 2023. These contributions are in addition to regular annual contributions of approximately £270m in respect of the ongoing accrual of benefits as well as contributions to meet the expenses of running the scheme….’

And as another pig flies past the window, we ask more generally about the state of RBS’s wider liabilities, only to discover that things aren’t going all that well. At the last full results session in late February, RBS reported its sixth annual loss since it was rescued by the UK government in 2008.  The bank’s pre-tax loss for 2013 was £8.2 billion  (£5.28 billion in 2012).  In fact, the bank’s cost-to-income ratio currently stands at 73%, but RBS has set a target of getting this down to about 55% by 2017.

Which is an absolutely dandy target to set, raising only the same one-word question as the elimination of the pension hole: how?

After all, Ross McEwan – the man who sees no fraud – has himself admitted that RBS must also ‘set aside’ £500 million for its mis-selling of interest rate swaps to small businesses, £1.9 billion to cover mainly US action over mortgage-backed financial products, and £465 million to payment protection insurance (PPI) compensation.

But it’s all neat and tidy in the end, because the bad debt write downs of up to £4.8 billion will be moved to a yes, you saw it coming, “bad bank” called RBS Capital Resolution, or RCR.

So if you’re with BES and you want to make it to NB, then watch out for the BTB. And if you’re with RBS and you want to make it to, er, somewhere or other, then try to avoid the RCR bear-trap.

Drivel, tosh, and lots of numbers moved around after gaining some new initials. Treasury spivs and corporate accountants fiddling the books with the help of surreal auditing, and all the poo-poo stuck under obscure headings called miscellaneous items or other considerations.

Consider this about RBS: its Russian exposure is really the bank’s Angola that sank BES. In 2012, the bank announced a huge withdrawal from the wholesale/corporate sector (“to focus on our existing strengths in fixed income, foreign exchange, debt financing, transactions services and risk management solutions – the cornerstone products globally”) and it clearly can’t make money in an uncertain retail environment. In India, for example, it now intends focusing only on investment/corporate banking: it shut 21 out of 31 branches there last year, dumped bad loans to SMEs and individuals into another BTB somewhere, yet increased its profits from investment banking by over 52%.

So in an emerging Bric, RBS is now focusing totally on corporate….and within that, on globalist corporate. It says this sector will boom next year. Not if QE continues to taper, it won’t. The situation in India is distinctly uncertain.

The real bottom line is this: BES was a complex and crookedly run bank that lost the plot, fiddled the pensions, and got involved in developing markets. RBS is a complex bank formerly run by crooks that bought ABN Amro, fiddled the pensions, saw a falling-out between Hester and Osborne over divesting its investment management business, and has now lost the plot while focusing heavily on globalist investment management in developing markets.

The British government has been trying to sell RBS for five years, but there are no mugs left out there with that kind of money. It has just been heavily censured by the Parliamentary TSC for being economical with the truth about widespread fraud. It seems prone to technical cash-flow glitches that spookily always get resolved in its favour. Strategically, it is all over the place, and its business model is something of an ocean-going sieve. Financially, it has already cost the UK taxpayer £40bn. Evidence of criminality in its past dealings with SMEs are not going to go away.

There is really only one issue that George Osborne cares about when it comes to the UK banking sector: keeping the plates in the air and the smoke pumping out of the distorted mirrors until May 2015. I do not wish him luck, but I do think he is going to need it.

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