RBS gets honest in a sobering message to debt-addicted Brita

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http://www.telegraph.co.uk/finance/news ... itain.html

Let's be honest. Britain is in the midst of its worst recession for several generations.

The country is so vastly indebted it will take a cultural shift to work the past excesses out of the system. Bailing out the banks and stimulating the economy will inevitably lead to higher taxes in the future. And two of Britain's lenders – Royal Bank of Scotland and HBOS – were recklessly ambitious in the boom. Did you really think it would take just six months to fix the problems?

That, at least, is the argument made by Stephen Hester, RBS chief executive. This is the new no-nonsense RBS. A group prepared to tell it like it is and give investors, including us as taxpayers who own 70pc, every pedantic detail on the bank. Its half-year results run to 240 pages, twice the length of the announcements from Lloyds Banking Group and Barclays and as long as the disclosures by HSBC, Europe's biggest bank. Openness and transparency, Mr Hester believes, will be the first step towards restoring confidence.

For the moment, though, there is not much to be confident about, as he makes amply clear. Bad debts will continue to tick up, having risen fivefold, the profit margin is showing no signs of improving, and there is no sight of recovery before 2011.

Contrast that with Lloyds, the owner of HBOS. Eric Daniels, chief executive, said on Wednesday that bad debts were past their worst and margins will improve next year. He also painted a sunny economic outlook at odds with Mr Hester, of house prices falling just 7pc this year and stabilising in 2010, and of 1.8pc economic growth compared with the Treasury's own forecasts of 1.25pc.

How can Britain's two state-backed banks hold such differing views?

Call me a cynic, but I believe it comes back to openness and transparency. RBS has cleared out the board, naming a new finance director to complete the process today. Only the chairman at Lloyds is changing. That's not to say the Lloyds board needs to change, but it is not in their interests to forecast gloom and make the HBOS acquisition look as disastrous as it is widely believed to have been.

Mr Hester can afford to be bleak and take drastic actions now, safe in the knowledge that he can blame past indiscretions on the old lot. The Lloyds approach is to predict a sharp recovery – so sharp in fact that even the Treasury doesn't believe it – and pray it comes good. If it does, they may be remembered as the men and women who saved HBOS – not the ones who nearly killed Lloyds.

There are other differences. Lloyds is proportionately more exposed to commercial property, bad debts on which may have already hit rock-bottom. Hence Lloyds' suggestion that the worst of the impairments are over, and also why Lloyds shares are down only 6pc while RBS have tanked 12pc this morning.

For Mr Hester, though, the picture is bigger than commercial property. The banks may have to work through their debts and tighten their belts, but so does the British public.

"The answer to our collective problem is not to go back to lending or borrowing too much," he said. It's a sobering message