Mounting costs take shine off RBS profit

Shares in taxpayer-backed lender slump as series of headwinds threaten to drag on future growth

ROYAL Bank of Scotland has delivered its first profit since the financial crisis, but the looming threat of a US fine and the growing cost of overhauling the lender for digital banking sent its stock sliding.

Ross Mcewan, its chief executive, said the £752m bottom-line profit for 2017 – compared to a £7bn loss the previous year – was a “symbolic moment for the bank”.

But he and chairman Sir Howard Davies were put on the defensive to account for mounting restructuring costs, past mistreatment of small firms and deep branch closures. RBS also gave no sign as to when it would return to paying a dividend. The firm’s share price closed down 4.8pc at 268.4p yesterday.

RBS is facing an impending fine from the US Department of Justice for misselling toxic mortgage-backed securities in the run-up to the crash, which analysts expect could be north of £6bn.

The lender had hoped the fine would fall in 2017, but it now looks set to spoil this year’s results instead.

The Treasury has repeatedly said it will wait until after the US fine before starting to sell off its 71pc stake in the bank, although it expects to start doing so by March next year.

The bank also followed Barclays in revealing a large gender pay gap, with women on average paid 37.2pc less than men.

Mr Mcewan admitted the gap was “not where we want it to be” and said the bank had set “ambitious targets” for promoting more women to senior roles.

RBS was hit by a string of one-off costs, including a £175m hike in provisions for meeting claims for mis-selling payment protection insurance after a surge following a watchdog TV ad campaign featuring Arnold Schwarzenegger last summer.

Mr Mcewan refused to put a timescale on restarting a dividend, but said “we will start with a small dividend and progress from there”.

RBS surprised investors by hiking the amount it expects to spend on restructuring costs to £2.5bn over the next two years – £1.5bn more than it had previously said, indicating the lender wants to become smaller, faster.

Mr Mcewan refused to rule out further branch closures as part of the programme, but said the costs mainly related to investment in digital banking services.

The firm’s net interest margin – a key measure of underlying bank profitability – fell to just a shade over 2pc in the fourth quarter.

Elsewhere, Mr Mcewan defended the bank’s existing plans to close more than 250 of its 1,000 branches, which has prompted opposition from communities and politicians across the UK.

He said RBS had to react to a “big swing to mobile” banking and that the lender would fill in gaps with mobile bank vans, community bankers and services available through Post Offices.

RBS came under further pressure this week after a stinging report into mistreatment of struggling small firms by the lender’s now-defunct turnaround unit Global Restructuring Group was published by MPS.

The regulator’s report blamed former bank bosses for chasing profits at the expense of distressed firms.