RBS predicts ‘cataclysmic year’ and tells clients to ‘sell everything’

Royal Bank of Scotland’s credit chief has issued a warning to clients to expect a “cataclysmic year” ahead and urged them to “sell everything” as the “exit doors are small”.

The still more than 70 per cent state-owned lender’s note, signed off by head of credit, Andrew Roberts, and seen by the Telegraph newspaper, said that the bank’s analysts foresee markets potentially falling by 20 per cent.

The Edinburgh-based bank’s client note said: “Sell everything except high-quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.”

RBS first issued its grim warnings for the global economy in November but events have moved even faster than feared.

It estimates that the US economy slowed to a growth rate of 0.5pc in the fourth quarter, and accuses the US Federal Reserve of “playing with fire” by raising rates into the teeth of the storm. “There has already been severe monetary tightening in the US from the rising dollar,” it said.

The bank also warned that the current crisis in China will “snowball” and lead to a downward spiral in global markets.

“China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the ‘Goldlocks love-in’ of the last two years,” Mr Roberts said.

In particular he sounded a word of warning to those invested in oil and mining stocks for the dividends. “All these people who are long oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe,” he said.

He warned that brent oil could drop as low as $16 a barrel, which follows on from Morgan Stanley’s prediction today that it could drop as low as $20 a barrel.