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RBS takes £2.5bn hit to profits as chief executive announces bank 'clean-up' RBS takes £2.5bn hit to profits as chief executive announces bank 'clean-up'
(about 5 hours later)
Royal Bank of Scotland is set to report its eighth consecutive year of full-year losses after announcing a string of charges for legal bills, compensation and a pension payment.Royal Bank of Scotland is set to report its eighth consecutive year of full-year losses after announcing a string of charges for legal bills, compensation and a pension payment.
The bank, which is more than 70%-owned by the taxpayer, said it would take a £2.5bn hit to profits in 2015 as a result of a clean-up exercise, driving its share price to a three-year low in Wednesday’s early trading.The bank, which is more than 70%-owned by the taxpayer, said it would take a £2.5bn hit to profits in 2015 as a result of a clean-up exercise, driving its share price to a three-year low in Wednesday’s early trading.
RBS shares fell 5% to 246p – below the 330p at which George Osborne sold off the the government’s first tranche of shares in August, and less than half the 502p average price at which taxpayers pumped £45bn into the bank. RBS shares fell 5% to 246p in early trading on Wednesday – below the 330p at which George Osborne sold off the the government’s first tranche of shares in August, and less than half the 502p average price at which taxpayers pumped £45bn into the bank. By lunchtime the share price had recovered marginally, but RBS remained one of the biggest fallers in the FTSE 100, down more than 3% at about 250p.
Issuing an unscheduled trading update on Wednesday, Ross McEwan, the chief executive of RBS, said the move was part of a continued clean-up but conceded that that the bank would make another full-year loss for 2015. It has not reported a profit since 2007.Issuing an unscheduled trading update on Wednesday, Ross McEwan, the chief executive of RBS, said the move was part of a continued clean-up but conceded that that the bank would make another full-year loss for 2015. It has not reported a profit since 2007.
“I am determined to put the issues of the past behind us, and make sure RBS is a stronger, safer bank. We will now continue to move further and faster in 2016 to clean up the bank and improve our core businesses,” said McEwan.“I am determined to put the issues of the past behind us, and make sure RBS is a stronger, safer bank. We will now continue to move further and faster in 2016 to clean up the bank and improve our core businesses,” said McEwan.
“We’ve always been open about the scale of past issues facing RBS and although there is clearly much more to do, this announcement is a further step towards addressing legacy issues and building a great bank for our customers and delivering long-term value for our shareholders,” he added.“We’ve always been open about the scale of past issues facing RBS and although there is clearly much more to do, this announcement is a further step towards addressing legacy issues and building a great bank for our customers and delivering long-term value for our shareholders,” he added.
Finance director Ewen Stevenson warned analysts that there would be a “few more bumps” this year and described the latest setback as “humbling”.
The bank said not all of the measures it was announcing would hurt its profits and the hit to shareholders’ equity was £3.6bn in 2015. For instance, the £4.2bn being pumped into its pension fund will hurt its key capital base rather then its profits.The bank said not all of the measures it was announcing would hurt its profits and the hit to shareholders’ equity was £3.6bn in 2015. For instance, the £4.2bn being pumped into its pension fund will hurt its key capital base rather then its profits.
RBS’s pension fund has 230,000 members, about 30,000 of whom still work for the bank, though it has been closed to new members since 2006. RBS’s pension fund has 230,000 members, about 30,000 of whom still work for the bank, though it has been closed to new members since 2006. The bank had been plugging the deficit by annual payments but is now making a single payment.
There are also new provisions of £1.5bn for legal costsin anticipation of US litigation over residential mortgage-backed securities (RMBS) – which date back to the 2008 financial crisis – taking the total set aside for this matter to £3.8bn. But the cost of RBMS to RBS looks certain to rise once the US authorities impose fines on the bank for the mis-selling. There are also new provisions of £1.5bn for legal costsin anticipation of US litigation over 2o cases relating to residential mortgage-backed securities (RMBS) – which date back to the 2008 financial crisis – taking the total set aside for this matter to £3.8bn. But the cost of this mortgage bond misselling looks certain to rise once the US authorities, the department of justice and attorney generals, impose fines on the bank. Stevenson said the final bill would be “substantially in excess” of the sums already set aside.
Related: Is RBS right to forecast doom and gloom for the global economy?Related: Is RBS right to forecast doom and gloom for the global economy?
An extra £500m is being set aside for payment protection insurance (PPI) mis-selling, taking this total to £4.3bn, though McEwan said he believed this would be the bank’s last provision for this “long, tortuous” saga.An extra £500m is being set aside for payment protection insurance (PPI) mis-selling, taking this total to £4.3bn, though McEwan said he believed this would be the bank’s last provision for this “long, tortuous” saga.
The bank is also taking a hit from its private bank, Coutts, writing down its value by £498m. “This business can do better. It’s in the middle of a multi-year turnaround,” said McEwan, who has sold off Coutts’ international operations. The bank is also taking a hit from its private bank, Coutts, writing down its value by £498m. “This business can do better. It’s in the middle of a multi-year turnaround,” said McEwan, who has sold off Coutts’s international operations.
The company’s finance director, Ewen Stevenson, said Wednesday’s announcement should not have an impact on the bank’s ability to start returning to capital to shareholders. Stevenson said Wednesday’s announcement should not have an impact on the bank’s ability to start returning to capital to shareholders.
Gary Greenwood, analyst at Shore Capital, said: “While such headlines are disappointing they are not necessarily unexpected and we note that RBS now has the balance sheet strength to comfortably absorb such costs. Indeed, we estimate that the group had approximately £8bn of surplus capital on its balance sheet at the end of September 2015.” Gary Greenwood, analyst at Shore Capital, said: “While such headlines are disappointing, they are not necessarily unexpected and we note that RBS now has the balance-sheet strength to comfortably absorb such costs. Indeed, we estimate that the group had approximately £8bn of surplus capital on its balance sheet at the end of September 2015.”
“Bad news – really? More like putting their past in their behind, as Pumba said [in the Lion King],” said Sandy Chen at Cenkos. “Bad news – really? More like putting their past in their behind, as Pumbaa said [in the Lion King],” said Sandy Chen at Cenkos.