Analysts fear ABN Amro takeover has led to vastly increased write-down levels

ROYAL Bank of Scotland is expected to announce write-downs of between £500 million and £1.9 billion from the global credit squeeze this week, with rumours circulating that a slippage in second-half earnings could also be confirmed.

When RBS's long-awaited moment of truth arrives on Thursday, most brokers believe that chief executive Sir Fred Goodwin will write off some £500m from the value of loans linked to American mortgages caught in the subprime debacle. Some analysts are much more pessimistic, with the team at Sanford C Bernstein believing that the total could be as much as £1.9bn, despite the group's cautious approach to notortiously dangerous areas such as collateralised debt obligations (CDOs).

The second-half earnings concerns, meanwhile, stem from problems in capital markets as well as the US downturn. If they are borne out, it will be the first such setback since Goodwin took the helm in 2000.

The bad news could be rounded off with the possibility of further write-downs as RBS managers get their feet under the table at ABN Amro, the Dutch giant acquired through a £50bn consortium takeover earlier in the year.

Brokers at Panmure Gordon point out that ABN Amro was a major player in the complex derivatives market and estimated that it held total positions of a startling £1 trillion at the time of its acquisition, although it is likely many of these positions have since been unwound. In the worst case scenario, the debts to which they refer could have become worthless, making them impossible to pass on and therefore irrecoupable.

The uncertainties have put the stock market's rumour factory into overdrive, with gossips claiming that RBS could be poised to sell its £3bn stake in Bank of China or announce a dividend cut to build up its cash position.

There have even been suggestions that Goodwin could tap shareholders with a fundraising rights issue of new shares, despite the likelihood of an icy reception from investors who have seen their investments plunge from 725p a share earlier this year to below 400p at one time in recent weeks.

While the company has declined to comment ahead of the update, it has pointed out that it would have had to make any major announcements long before now to prevent a false market developing in its shares.

Officially, this week's update is purely a trading statement to cover prospects for the group's vast spread of activities covering Europe, Asia and the US and taking in retail banking, wealth management and corporate banking.

But it would be surprising if the RBS board does not take the opportunity to provide a health check on the state of the Global Banking Markets division and the anticipated need for write-downs.

Followers hope they will stress that the troubled CDOs area - which covers packages of loans of varying risk - represents a relatively small part of the division and that its loans are valued on a daily basis to avoid the potential for any future black holes in the balance sheet.

Even pessimists believe that for the year as a whole, RBS remains on course to deliver a healthy profits increase before taking account of its debt exposure, with consensus estimates suggesting a likely increase from £9.1bn to £9.9bn despite a downturn at the American Citizens Bank.

And most still expect directors to boost confidence by declaring a fat increase in the dividend from 25.77p to upwards of 33p for the full year.

Given the prospect of sell-offs, however, including Angel Trains, numerous properties and the rumours about the Bank of China stake, there is much debate about what it will mean for RBS's profitability in future.

Super-bears at Panmure Gordon have suggested that next year's profits could dip to as low as £7.8bn. But most others still expect a total of around £10.8bn and analysts at Exane BNP Paribas, Lansbanki and Oriel are among those to tell clients to buy shares in RBS in the belief that any bad news is already discounted in the current share price.