RBS loss widens to $8.7bn in 2016

British bank lays out cost-cutting plan

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Bank of Scotland Group Plc, Britain’s largest taxpayer-owned bank, laid out a plan yesterday to cut costs by £2 billion ($2.5 billion) over the next four years as it posted its ninth straight annual loss and delayed profitability targets.

The net loss widened to £6.96 billion ($8.74 billion) in 2016 from £1.98 billion a year earlier, the Edinburgh-based lender said in a statement. Excluding conduct charges and restructuring costs, operating profit was £3.67 billion, topping the £3.1 billion average estimate of seven analysts compiled by Bloomberg News.

Chief executive Ross McEwan remains mired in past scandals almost a decade after RBS required a £45.5 billion bailout from UK taxpayers, as he battles to draw a line under surging charges tied to regulatory probes and the aborted sale of the bank’s Williams & Glyn consumer unit.

RBS has now accumulated more than £58 billion of losses since 2009.

“The bottom line loss we have reported today is, of course, disappointing,” McEwan said in an e-mailed statement. “These costs are a stark reminder of what happens to a bank when things go wrong and you lose focus on the customer, as this bank did before the financial crisis.”

The bank’s shares fell 1.5% to 245.6 pence at 8.04 a.m. in London yesterday. The stock had climbed 11% this year, after dropping 26% in 2016.

It was a foregone conclusion that RBS would post its third-largest loss in the past decade, after it set aside £3.8 billion in recent weeks for a US investigation into the sale of mortgage-backed securities, while pledging to pay to boost competitors in the UK commercial banking market to meet European Union demands tied to its bailout.

RBS said it now aimed to reach a 12% return on tangible equity in 2020, one year later than planned.

The bank said it would face another £1 billion of restructuring charges this year, apart from additional costs tied to its plan to meet state aid obligations.

RBS also expects 2017 to include most of the £800 million of losses it anticipates to come from disposing of unwanted assets.

“RBS currently expects that 2017 will be its final year of substantive legacy clean up with significant one-off costs,” the bank said in its statement. “Consequently, we anticipate that the bank will be profitable in 2018.”

“The European Commission probably won’t provide RBS with an update on its view on the proposed alternative to selling Williams & Glyn until at least the fourth quarter of this year,’’ chief financial officer Ewen Stevenson said on a call with reporters. “The UK and the bank will then enter a fairly lengthy renegotiation of state aid.”

McEwan is pushing to eliminate operating expenses as he shrinks RBS, a one-time global titan, to a domestic retail and commercial lender.

He’s redoubling his efforts after his plan to lower the bank’s cost-to-income ratio, a key measure of profitability, to below 50% by 2020 was blown off-course after the Bank of England cut interest rates last year.

The bank’s core Tier 1 capital ratio, a measure of financial strength, fell to 13.4% from 15% at the end of September.

RBS said it planned to have a ratio of at least 13% at the end of this year, and planned to cut £20 billion of risk-weighted assets from its core businesses by the end of 2018 to boost capital.

While McEwan has previously pledged to return capital to investors through dividends or share buybacks above 13%, he’s also said that he needs to return the lender to profitability, pass stress tests from the Bank of England, close its US mortgage securities probes and reach a deal with the EU over Williams & Glyn.

Full-year adjusted revenue fell 5% to £12.4 billion. Operating costs aside from the legal and restructuring charges dropped 12% to £8.22 billion. Its investment bank unit swung to a £201 million adjusted profit for 2016, after a loss a year earlier.