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RBS reveals £1bn loss and Swiss inquiry into Coutts subsidiary RBS reveals £1bn loss and Swiss inquiry into Coutts subsidiary
(about 9 hours later)
Royal Bank of Scotland has revealed that Swiss authorities are scrutinising its Coutts subsidiary as the bailed-out bank reported a near £1bn loss for the first three months of 2016. Royal Bank of Scotland has revealed that Swiss authorities are scrutinising its Coutts subsidiary as it reported a near £1bn loss for the first three months of 2016.
The loss, and problems selling off its Williams & Glyn network to comply with a demand from the European Union, have raised questions about the government’s ability to sell off any further shares in the 73% taxpayer-owned bank. RBS said the Swiss regulator, the Swiss financial market supervisory authority (Finma), had “opened enforcement proceedings against Coutts & Co Ltd (Coutts), a member of the RBS Group incorporated in Switzerland, with regard to certain client accounts held with Coutts”.
RBS said the Swiss regulator, the Swiss Financial Market Supervisory Authority, had “opened enforcement proceedings against Coutts & Co Ltd (Coutts), a member of the RBS Group incorporated in Switzerland, with regard to certain client accounts held with Coutts”. The admissions follow last year’s revelations that German prosecutors were investigating this operation, which provides banking services for wealthy individuals. RBS sold this Coutts international arm in April this year.
The admissions follow last year’s revelations that German prosecutors were investigating current and former staff of Coutts’s Zurich and Geneva offices, which provide banking services for wealthy individuals. RBS sold this Coutts international arm in April this year. While the bank reported a statutory £421m profit for the first quarter of 2016, a £1.2bn payment to the government meant that shareholders would see a £968m loss. A £226m charge was taken for the sale of a shipping portfolio.
RBS has also been drawn into the “Panama Papers” scandal, the leak of 11.5m documents from the law firm Mossack Fonesca, and like other banks been asked for information by the Financial Conduct Authority. The loss, and problems selling off its Williams & Glyn network to comply with a demand from the European Union, have raised questions about the prospects of the bank paying dividends to shareholders before 2018 – in turn impeding the government’s ability to sell off any more of its 73% stake.
In legal warnings attached to its results, the bank said it had “responded to the FCA setting out details of the limited services provided to Mossack Fonseca and its clients and is continuing its internal review, as well as monitoring all new information published”. Its shares were the biggest fallers in the FTSE 100 on Friday, slumping 6% to 230p, on dismay that the bank would not be able to pay dividends to shareholders until it had found a solution to the disposal of the W&G network. On Thursday, RBS had admitted it was running the risk of missing a deadline of 2017 to carved out this branch network, a move demanded by the EU at the time of its £45bn bailout.
While the bank reported a statutory £421m profit for the first quarter of 2016, it admitted a £1.2bn payment to the government to release it from a key part of its £45bn bailout meant that shareholders would see a £968m loss. A £226m charge was taken for the sale of a shipping portfolio. Analysts lined up to express concern about the delay, which Gary Greenwood, analyst at Shore Capital, described as “farcical”.
The bank – which owns NatWest – stunned the City on Thursday by racing out an announcement saying it was encountering fresh obstacles in its bid to offload its Williams & Glyn branch network, a sale demanded by the EU as part of its taxpayer bailout. Laith Khalaf, senior analyst at stock markets Hargreaves Lansdown, said: “The delay of the spin-off kicks dividend payments into the long grass, and probably means investors will have endured a decade-long dividend drought before the bank starts making payments again.”
Ross McEwan, chief executive of RBS, said the bank had not yet had any discussions about the penalties it could incur if it fails to meet the deadline – already extended – of December 2017 to complete the separation. Neither would McEwan, who has been at the helm since October 2013, give any details of the “other alternative” strategies being pursued. Despite warnings from analysts that the W&G delay questions the management of the bank, chief executive Ross McEwan said the team was “delivering on everything within our gift”.
While Lloyds Banking Group spun off TSB by continuing to provide the 600-branch network with its IT systems, RBS is trying to completely separate the IT systems before it sells Williams & Glyn. McEwan continued to caution about the expected penalty from US authorities for the way it sold mortgage bonds – the so-called residential mortgage-backed securities (RMBS) – in the run up to the crisis. Analysts have calculated that this could amount to £8bn, although the bank could begin talks with individual states to try to reach settlements.
Despite warnings from analysts that this delay questions the management of the bank, McEwan said the team was “delivering on everything within our gift”. RBS, like other banks, also admitted it been asked by the Financial Conduct Authority for any links to the “Panama Papers”, the leak of 11.5m documents from the law firm Mossack Fonseca.
Gary Greenwood, analyst at Shore Capital, said: “We cannot hide our disappointment with both the results and the announcement of the ongoing delay to the divestment and separation of Williams & Glyn, which has frankly now become farcical, to say the least.”
McEwan continued to caution about the expected penalty from US authorities for the way it sold mortgage bonds – the so-called residential mortgage-backed securities (RMBS) – in the run up to the crisis. Analysts have calculated that this could amount to £8bn. RBS has amassed £50bn of losses since the 2008 bailout and McEwan would not predict if he expected the bank to make a profit for 2016 but said the bank was generating income of £1bn per quarter.
The finance director Ewan Stevenson said that uncertainty over Williams & Glyn and the settlement over RMBS meant that he “continues to caution on the timing for capital distribution”, that is payouts to shareholders in dividends or share buybacks. He has reined in the bank’s global ambitions and is shrinking operations back to 13 countries from the more than 50 during the Fred Goodwin era. As part of this, one of its main offices in London – 135 Bishopsgate, home to its investment banking operation – will be shut down, although this will leave two other premises in the Liverpool Street area of the City.
The bank has not paid dividends to shareholders since its 2008 bailout and analysts had pushed back expectations to early 2017. Such payouts would help the government further reduce its stake in the bank in which it has only sold off one tranche – in August 2015 – at a £1bn loss.
“There is no capital return slide in management’s slide presentation, presumably following Thursday’s announcement regarding yet another delay in the [Williams & Glyn] disposal process,” said Joseph Dickerson, equity analyst at Jefferies.
RBS shares were flat at 242p shortly after the results were issued, a price which remains well below the 330p at which the government sold shares last summer and below the 502p break-even price.
RBS has amassed £50bn of losses since the 2008 bailout and has not made an annual profit since 2007. McEwan would not predict if he expected the bank to make a profit for 2016 but said the bank was generating income of £1bn per quarter.
McEwan has reined in the bank’s global ambitions and is shrinking operations back to 13 countries from the more than 50 during the Fred Goodwin era. As part of this, one of its main offices in London – 135 Bishopsgate, home to its investment banking operation – will be shut down, although this will leave two other premises in the Liverpool Street area of the City.