Computer malfunction 'could cost RBS £100m'

26 June 2012

Royal Bank of Scotland (RBS) could face a bill of up to of £100 million ($156 million) as a result of its on-going technological failure, analysts believe.

The major British bank - which is 82 per cent state-owned - has announced it will open more than 1,000 of its NatWest branches across the country for longer hours for the foreseeable future in order to deal with the continuing IT problems afflicting the retail operations of the bank. The problems stem from the on-going failure of an overnight batch processing solution last Wednesday, which was caused by a software upgrade that went wrong.

Stephen Hester, RBS Group chief executive, has compared the on-going problems at RBS' retail banking operations to the stacking of aircraft around London Heathrow airport, citing the issue of a huge backlog building up after an initial failure, for the continuing difficulties, although he insists that the IT problem itself is now fixed.

In recent days, RBS customers have faced huge disruptions to their personal and business banking experience, including being unable to transfer money across accounts and withdraw cash, as well as having their direct debits affected. Business payments to suppliers have also been adversely affected.

Consequently, RBS has drafted in more than 7,000 extra members of staff to help solve the problem and will also be expected to compensate people impacted by the issue. And, with such factors in mind, banking experts think the malfunction could cost the bank millions to fix, Reuters reports.

Ian Gordon, an analyst at Investec agreed, commenting that: "Subject to a relatively quick resolution [from now on as the crisis enters its seventh day] and the avoidance of anymore doomsday scenarios, I think the problem will be manageable and the cost in the high tens of millions [if not triple figures]."

The varying predictions of the cost are one thing, but the reputational damage that has been done to RBS is huge and it is this that will be much more damaging in the long-term.

By Gary Cooper and Neil Ainger

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