Bloomberg News

RBS Glitch May Cost ‘Hundreds of Millions,’ Analyst Says

June 25, 2012

RBS Glitch May Cost ‘Hundreds of Millions,’ Analyst Says

The ability of customers to make cash withdrawals, money transfers and payments was curtailed by the breakdown. Photographer: Simon Dawson/Bloomberg

Royal Bank of Scotland Group Plc’s computer glitch that stopped customers from making payments and accessing money, may cost the lender “hundreds of millions of pounds,” according to Shore Capital Stockbrokers Ltd.

Canceling fees and paying employees for working extra hours may cost tens of millions of pounds, while compensation claims could push the total into the hundreds of millions, Gary Greenwood, a banking analyst at Shore Capital, wrote in an e- mail to clients today. If 1 percent of customers were to claim 500 pounds ($777) each for financial loss, the bank would have to pay 85 million pounds, he said.

Britain’s biggest government-owned bank is extending hours at more than 1,200 branches in the U.K. and Ireland this week after opening over the weekend, following what it said was a “systems outage” that started on June 19. The ability of customers to make cash withdrawals, money transfers and payments was curtailed by the breakdown.

“From an investment case perspective, it doesn’t make much difference,” Greenwood said. “We do not believe reputational damage will be too significant or lasting, although, at the margin, it does strengthen the hand of new entrants” such as Metro Bank Plc, he said.

Clearing Backlog

The technical problem is fixed, NatWest, a retail unit of RBS affected by the glitch, told customers in an e-mail on June 23. RBS is working at clearing a backlog of transactions before it begins estimating what the cost might be, Nicky Harris, a spokeswoman, said by telephone today.

The bank is “making progress in putting things right” and customers can withdraw 100 pounds above their agreed credit limit, RBS said today.

RBS will take the glitch into consideration when considering executive bonuses, Chief Executive Officer Stephen Hester said in an interview with Sky News today. “All of us are judged in part on customer service from me downwards,” he said. “There’ll be proper accountability” and RBS “will be able to take the financial consequences,” Hester said.

The bank last month said it’s approaching a loan-to-deposit ratio of 100 percent, indicating that it takes a pound in deposits for every pound it lends. The ratio was 154 percent in 2008, which meant RBS was reliant on wholesale markets to fund its balance sheet.

“The issue is attracting a massive amount of bad publicity for the bank and will undoubtedly have a cost in terms of customers being recompensed for losses and the possibility of the loss of deposits at a time when improving the bank’s loan to deposit ratio is a key target,” Christopher Wheeler, a London- based analyst at Mediobanca SpA, said in a note to clients today.

-- Editors: Jon Menon, Steve Bailey

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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