Well, there's a co-incidence. Three days ago Royal Bank of Scotland (owner of NatWest) were downgraded by Moody's and suddenly their computer systems went down.
The effect of the systems failure was that money could be received by RBS but not made available to it's clients. For example, companies were able to transfer weekly wages into RBS, but their employees could not get to their salaries. There have even been reports of people being evicted from homes they had just moved into because the funds were not transferred to the vendor's solicitor.
The effect of a downgrade is serious. It means that a bank has to pay more to borrow which reduces it's profitability. It must raise more cash to restore the capital asset ratios on it's balance sheet.
It has been clear for a long time (to those who care to look) that all the major international banks are insolvent, bankrupt. They have been using all kinds of (mostly fraudulent) schemes to pretend otherwise. The UK Government has been worried about RBS for some time.
When you are already struggling to pretend that everything is rosy and suddenly your losses are increased and your balance sheet is hit, what do you do?
It's simple, you stop paying out. It is obvious that the reported problems are not the result of a 'failed software upgrade' but a deliberate and cynical ploy to retain cash in the bank.
Anyone who has run a business knows that when things get tight you have to simply hang tough. Get in as much money as you can and hold back on payments. There will be some people you have to pay (for instance product suppliers if you are in retail) but everyone else has to wait.
You just take the PR hit, get out the best story you can ("it was a computer glitch - but we have fixed it") try to minimise any inevitable costs and ride the storm. Depending on your normal cash flow volume it might only take a few days or a week, two weeks at the most.
This blog commented in February on the £2bn losses racked up by RBS - while they continued to pay out nearly £1bn in bonuses. CEO of RBS, Stephen Hester, received a lot of stick at the time about the size of his remuneration package when set against the current austerity faced by British people.
Yesterday, Mr Hester popped up again, this time casting doubt as to whether the 'glitch' is really fixed or not, but saying he was very sorry. There is no suggestion that he will pay back the millions he has received based on the bank's 'performance'.
It is likely that the 'problems' will go on for another day or two. Remember, RBS received over £45bn from British tax-payers in 2008, so it will not be allowed to fail. If the problems are still not resolved by Wednesday, look out for another bail-out, as yet more money gets shoveled towards these crooked and incompetent bankers.
Posted by Nicholas Moore 11:00:29 am