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RBS investment banking division saves the group

The headlines this week will focus upon an expected £7 billion loss for 2009 at Royal Bank of Scotland and many will comment upon the proposed £1.3 billion bonus pool. However, under the surface we will find that the "controversial" investment banking division is still delivering profits in the billions of pounds and is effectively carrying the group in the short to medium term. The vast majority of the proposed £1.3 billion bonus pool will be paid to the company's investment bankers who are still delivering profits even in these most difficult of economic times.

The figures for 2009 will contain many exceptional items and one-off accounting procedures and are also expected to include a £14 billion hit from bad debts. When you take out many of these exceptional items and the bad debt provisions the company would have delivered profits in the billions of pounds and this would have given a whole different aspect to the company's performance. However, the truth is that Royal Bank of Scotland, like so many UK financial institutions, has been hit enormously hard by bad debts, many of which are the product of risky investment decisions taken in the past.

Unfortunately for those assuming the company will soon return to the boom times and announce profits in the billions of pounds, the Royal Bank of Scotland we see today will be very different to the Royal Bank of Scotland we will see in the future.

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