RBS Takes A Hit On Greek Debt

Royal Bank of Scotland reported a wider than expected loss for 2011, fueled in part by a write down on Greek debt and compensation to customers who were sold insurance that they didn't need. Royal Bank of Scotland

, which is the United Kingdom's second biggest bank, reported a net loss of 2 billion pounds ($3.1 billion) for 2011, compared to a loss of 1.1 billion pounds for the same quarter a year earlier. The loss was much worse than the 1.1 billion pound consensus loss forecast from a survey of analysts by Bloomberg. Much of the year's disappointing loss was caused by a 1.1 billion pound write off of Greek debt. RBS is just the latest European bank to report worse than expected returns due to the Greek debt crisis that the European Union is still trying to solve. Although the bank hopes the 1.1 billion pound write off will put most of its Greek related woes behind it, RBS is still at risk of further losses if Greece eventually defaults on its debt. The bank was also hit with compensation charges of 850 million pounds for customers who were sold unneeded payment protection insurance from the bank. Royal Bank of Scotland is especially sensitive to allegations of improper business practices because it has been majority owned by British taxpayers ever since the bank received a record 45.5 billion pound bailout from British government during the financial crisis. Ever since the bailout, the British public has paid close attention to the compensation that Royal Bank of Scotland's employees receive. Royal Bank of Scotland said that it is aligning its compensation plan more closely with long term performance and shareholders' interests. Although the share of banker pay to revenue has increased, the bank's total salaries and its bonus pool both fell in 2011. Royal Bank of Scotland is just the latest European bank to report greater than expected losses caused by the Greek debt crisis or poor performance from the banks' investment banking units. If Europe's banks continue to post greater than expected losses, this year's rise in European bank share prices could easily reverse course and turn to losses.