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RBS expects further fines with no let-up from regulators RBS expects further fines with no let-up from regulators
(about 9 hours later)
Royal Bank of Scotland warned of a “noisy” 2015 as the bailed-out bank was hit by £1.3bn of charges for fines and compensation payouts to customers in the first half of the year. Royal Bank of Scotland has warned of a “noisy” 2015 after it was hit by £1.3bn of charges to cover fines and compensation payouts to customers in the first half of the year.
Sir Philip Hampton, presiding over his last set of results after being chairman since the 2008 bailout, said the bank faced more hurdles because of the higher than expected fines imposed by regulators around the world. Sir Philip Hampton, presiding over his last set of results as RBS chairman, said the bank faced more hurdles because of the higher than expected fines imposed by regulators around the world. These were cited as among the reasons that the bank would not be paying dividends or conducting share buybacks until at least the first quarter of 2017 – later than the City had been expecting.
These would stop the bank making any returns to shareholders through dividends or share buybacks until at least the first quarter of 2017 - later than the City had been expecting. Even so, the release of the first-half figures could help clear the way for the chancellor, George Osborne, to start selling off the taxpayer’s 79% stake in the bank, a legacy of the institution’s 2008 bailout. Trading in the shares was volatile after the figures were released: after jumping 4% at the open they closed 3% lower at 342p.
“Past experience at RBS and many other banks has demonstrated the readiness of regulators to impose substantial fines and costly redress schemes. These conduct and litigation costs have greatly exceeded the expectations of banks and their investors. Judging the ultimate scale of conduct costs remains extremely challenging,” said Hampton. He is being replaced as chairman by Sir Howard Davies in September. Hampton said: “Past experience at RBS and many other banks has demonstrated the readiness of regulators to impose substantial fines and costly redress schemes”. Hampton, who became chairman in 2009, is being replaced by Sir Howard Davies in September.
“The industry as a whole has got a poor track record in predicting these [provisions]. We’ve consistenty under called them,” said Hampton. The most expensive one still to come is a punishment from the US over the way it packaged up risky mortgage bonds before the 2008 crisis. “The industry as a whole has got a poor track record in predicting these [provisions]. We’ve consistently under-called them,” said Hampton. RBS has taken £10bn of provisions since the crisis.
In May, RBS was on the list of banks shamed for rigging foreign exchange markets and handed fines totalling £6bn. The chief executive Ross McEwan warned that the rest of the year would be “noisy” as the long list of mistakes from the past continued to catch up with the bank. The most expensive hit still to come is over residential mortgage-backed securities (RMBS) sold in the US before the 2008 crisis, although settlement talks are yet to begin. Hampton also pointed to unresolved allegations about the bank’s treatment of struggling businesses in the UK. A report commissioned by the City regulator is to be completed later this year and if it concludes there was bad treatment, RBS warned it could face enforcement action and compensation payouts.
In the first half of 2015 the bank made £153m of losses compared with £1.4bn a year ago. On an operating basis, last year’s £2.6bn of profits were the highest since the £45bn taxpayer bailout, but have fallen back to £629m. These are the latest problems for RBS which in May, was on the list of banks shamed for rigging foreign exchange markets. The chief executive, Ross McEwan, warned the rest of the year would be “noisy” as the long list of mistakes from the past continued to catch up with the bank.
Despite the uncertainty surrounding the scale of future penalties, Hampton said: “This is an appropriate backdrop to the sale of shares by the UK government, which will be a significant moment for this bank”. In the first half of 2015 the bank made £153m of losses compared with £1.4bn a year ago. On an operating basis, last year’s profits of £2.6bn were the highest since the £45bn taxpayer bailout, but have fallen back to £629m. Some £1.5bn of restructuring costs, which include scaling back the investment bank which once dominated the business, also ate into profits.
George Osborne, the chancellor, said in his Mansion House speech in June that he would be selling off the taxpayer stake in the bank even though the shares are trading at less than the average of 502p the government paid for them. The shares were trading a 367.5p, up 4%, making them the biggest gainers in the FTSE 100 in early trading. Hampton said he not appreciated how long it would take to fix the bank when he joined. But, he said, he was pleased Osborne had signalled a share sale could begin even though the shares are worth less than the average 502p the government paid for them.
The shares were buoyed by the performance in the second quarter when analysts’ expectations of a loss proved ill-founded. “The market should be understandably pleased at a small first half profit when analysts had expected a small loss,” said Sandy Chen, analyst at Cenkos. To facilitate a potential selloff by the government, the bank provided more information than usual about the potential penalties its faces, including detail of the scale of RMBS situation. There are three separate actions, including 25 lawsuits and an investigation by the Department of Justice in the US as well as a number of attorney generals across the US.
As well citing the ongoing investigations into residential mortgage-backed securities (RMBS) in the US, Hampton also pointed to the investigation by UK authorities into the bank’s treatment of struggling business in the UK as another potential problem for the bank. The latest provisions include £334m for foreign exchange rigging, £506m for RMBS and £157m in relation to packaged accounts, or current accounts with insurance and other products attached to them. RBS has now set aside £300m for packaged accounts. Barclays also took a £250m provision in the first half for the same products.
In legal warnings attached to the results, RBS referred to the ongoing review by a so-called skilled person – appointed at the behest of the Financial Conduct Authority- into allegations of mistreatment of customers. The report could be handed over in 2015 and RBS said that if it concludes there was bad treatment, the bank could face enforcement action and compensation payouts. The ringfencing rules, which require banks to erect a barrier between their high street and investment banking arms, are likely to result in a higher profile for its NatWest brand, the bank said.
The bank faces three separate actions relating to $45bn (£28bn) of RMBS, including 25 lawsuits, an investigation by the Department of Justice in the US as well as a number of attorney generals across the US. The bank is required to spin off 316 branches under the Williams & Glyn brand under terms agreed with the European Union at the time of its bailout.
These ongoing issues were among the reasons why the bank played down hopes of any imminent returns to shareholders. “This is dependent on the achievement of certain strategic objectives, including sustained profitability, improved stress test results and resolving our major conduct and litigation issues,” the bank said. Hampton said: “This was part of the fog of war of the bailouts.” The EU thought it would take a matter of months for this to happen, said Hampton, rather than the years the task has consumed because of the complexity.
The latest provisions include £334m for foreign exchange rigging, £506m for RMBS and £157m in relation to packaged accounts - current accounts with insurance and other products attached to them. RBS has now set aside £300m for packaged accounts. Barclays also took a £250m provision in the first half for these packaged accounts.