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RBS reports £1.4bn loss but hails 'recovery milestones' RBS reports £1.4bn loss but hails 'recovery milestones'
(about 1 hour later)
Royal Bank of Scotland hailed the achievement of "important recovery milestones" on Friday even as it reported a loss of £1.4bn in the first quarter. Royal Bank of Scotland has played down any imminent sell off of the government's 83% stake in the bank even as it hailed the achievement of "important recovery milestones" .
The bank, 83% owned by the taxpayer, signalled that it was ready to resume payments to bond holders – which were banned under the terms of EU state aid rules until the end of the last month – and that it had nearly paid back cash borrowed to keep it afloat during the banking crisis.The bank, 83% owned by the taxpayer, signalled that it was ready to resume payments to bond holders – which were banned under the terms of EU state aid rules until the end of the last month – and that it had nearly paid back cash borrowed to keep it afloat during the banking crisis.
However, the bailed out bank took an extra £125m charge for compensating customers missold payment protection insurance. Even so RBS, reported a £1.4bn loss compared with £116m a year ago – although it was largely caused by a £2.5bn change in the value of the bank's debt. It also took an extra £125m charge for compensating customers missold payment protection insurance.
The £1.4bn loss compares with £116m a year ago – although it was largely caused by a £2.5bn change in the value of the bank's debt. Operating profits, which chief executive Stephen Hester prefers to focus on, were £1.2bn, largely unchanged on the same three months last year. The operating profits, which chief executive Stephen Hester prefers to focus on, were £1.2bn largely unchanged on the same three months last year.
"We are happy with progress in the first quarter though the economic and regulatory backdrop remains tough. RBS continues, markedly, to regain strength and resilience. Our focus is on improving the future for customers and our business whilst ensuring that the bank's past issues are dealt with," Hester said. "Excellent progress continues in removing 'mistakes' of the past," said Hester.
The taxpayer, though, is sitting on a £21bn loss on its stake in the bank. The taxpayer is sitting on a £22bn loss on its stake in the bank, bought at an average price of 50p, even though the shares rose 1% to 24.8p by 8.30am.
Hester described the move to resume payments to bond holders as "important recovery milestones" and pointed out that the bank would next week pay off the last of the funds it borrowed from the Bank of England during the crisis. Hester said the government made a £1bn profit from the loans. "As far as I'm aware there is no desire to sell at the current share price," said Hester, despite speculation that there have been talks with potential Middle Eastern investors to buy a stake.
"With growth prospects muted in the major economies in which the group operates, and with fragilities persisting in European financial markets, the focus has remained on improving balance sheet strength and a strong liquidity position," Hester said. He has previously said that investors regard buying bank shares as "dumb" and repeated that on Friday saying "the share price is sending a very clear signal".
Hester also said it would be "at least a year" until any decision could be made on making dividend payments to shareholders. The bank is planning a one for 10 share consolidation – which would move the share price to 248p and is intended to reduce volatility in its price – which Hester described as "a matter of symbolisation in terms of presenting a new face to the capital markets".
He described the move to resume payments to bond holders as "important recovery milestones" and pointed out that the bank would next week pay off the last of the funds it borrowed from the Bank of England – some £163bn – during the crisis. The government has made a £1bn profit from the loans. RBS is still borrowing from the European Central Bank.
The loan to deposit ratio – which shows how many savings can be used to supporting lending – has now reached 106% compared with more than 150% during the crisis.The loan to deposit ratio – which shows how many savings can be used to supporting lending – has now reached 106% compared with more than 150% during the crisis.
"With growth prospects muted in the major economies in which the group operates, and with fragilities persisting in European financial markets, the focus has remained on improving balance sheet strength and a strong liquidity position," Hester said.
The bank has also paid £2.5bn for the cost of the insurance it receives for its most troubled assets through the asset protection scheme.The bank has also paid £2.5bn for the cost of the insurance it receives for its most troubled assets through the asset protection scheme.
As with its rivals, RBS continues to be hit by charges to compensate customers for PPI misselling and it has now set aside £1.2bn for claims. Some £501m had been paid out by 31 March. Ian Gordon, an analyst at Investec, said: "It is hardly a sexy story, but give credit for the very strong evidence of balance sheet repair."
As with its rivals, RBS continues to be hit by charges to compensate customers for PPI misselling and it has now set aside £1.2bn for claims. Some £501m had been paid out by 31 March and Hester concurred with António Horta-Osório, chief executive of Lloyds, who earlier this week had hit out against bogus claims.
In Ireland – where Hester said the bank had granted some "stupid" loans – the bank continues to face "exceedingly difficult market conditions" and incurred an operating loss of £310m as customers fell behind on debt repayments.
In the UK, Hester said that the official GDP data – which contracted 0.2% in the first quarter and took the UK back into recession – did not paint a true picture of the economy which he thought was a "bit better than those GDP numbers but it's still pretty flat". RBS's lending, measured by balances drawn down by customers, fell 1% and Hester said "at the moment customers are holding their fire".