Pound Falls After RBS Loss; Bank of Tokyo Sees ‘Tipping Point’

The pound fell against the dollar and the euro after Royal Bank of Scotland Group Plc, the U.K.’s biggest government-controlled bank, reported a first-half loss and set aside more than $12 billion to cover bad loans.

The U.K. currency dropped most against the Japanese yen. Gilts gained and the FTSE 350 Index of British banks slid after RBS chief executive officer Stephen Hester said “performance over the next two year” will continue to be “poor.” Bank of Tokyo-Mitsubishi UFJ Ltd. said the pound has reached “tipping point” after the Bank of England said yesterday it will expand an unprecedented program of bond purchases to boost the economy.

“RBS shows that there are still vulnerabilities in the banking system and that works against sterling,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking arm of Credit Agricole SA. ‘Had it not been for the Bank of England’s decision yesterday, the market would have been more inclined to overlook RBS. Sterling was already on the defensive.”

The pound slid to $1.6738 as of 11:25 a.m. in London, from $1.6783 yesterday. It weakened to 85.80 pence per euro, from 85.49 pence, and to 159.45 yen, from 160.22 yen.

RBS posted a net loss of 1.04 billion pounds ($1.7 billion), compared with 827 million pounds a year earlier. Analysts had predicted net income of 1.1 billion pounds, according to the median of six estimates in a Bloomberg survey.

‘Tipping Point’

Britain’s currency fell the most against the dollar yesterday since June 3 after the Bank of England said it will extend its asset-purchase program by 50 billion pounds, citing the “fragile” state of the U.K. economy.

“Yesterday’s BOE actions have raised the downside risks to the pound as it is likely to raise foreign-investor concerns over the BOE’s policy credibility similar to the Federal Reserve, edging the pound closer to an eventual tipping point,” Lee Hardman, a currency economist at Bank of Tokyo in London, wrote today in a report. “The U.K. needs a weak pound more than ever. In these circumstances, we believe that pound-dollar levels above $1.70 will prove unsustainable.” link.....