Royal Bank slumps to a loss of £469m
Chief executive warns it will miss deadline to sell Williams & Glyn network
ROYAL Bank of Scotland (RBS) has slumped to a £469 million loss in the third quarter as the taxpayer controlled bank racked up litigation, conduct and restructuring costs running into hundreds of millions of pounds.
The latest heavy losses to be posted by RBS came as the Edinburgh-based lender admitted there was no prospect of it meeting the December 31, 2017 deadline of divesting its Williams & Glyn network – in spite of receiving a non-binding bid from Clydesdale Bank owner CYBG for the 300 branch network this week.
RBS posted an attributable loss of £469 million for the third quarter, with its underlying profits hit by £425m of litigation and conduct costs, a £300m deferred tax asset impairment and a £469m restructuring cost. It took the attributable loss at the bank for the first nine months of the year to £2.5bn.
And there is no immediate sign of the bank drawing a line under the woes associated with past conduct.
The bank is facing a £1.25 billion compensation claim from shareholders who claim they were misled over its 2008 rights issue, and signalled yesterday that attempts to reach a settlement out of court have so far failed.
It faces the prospect of separate legal action from hundreds of businesses alleging mistreatment by the bank’s controversial global restructuring group (GRG), the bill for which could top £1 billion.
A long-anticipated report on the activities of the GRG by the Financial Conduct Authority had been due to be published last year, with the watchdog having launched its investigation in January 2014.
And it is bracing itself for a hefty bill over the mis-selling of mortgage backed securities in the US ahead of the financial crisis of 2008/2009.
The bank last month reached a $1.1bn (£846m) settlement with the National Credit Union Administration Board, the body which regulates credit unions in the US, relating to two cases.
Addressing reporters yesterday, RBS chief executive Ross McEwan said the bank would continue to pursue an out of court settlement over the 2008 rights issue, despite the previous attempt having failed following mediation in July. On GRG, he repeated the bank’s admission that in some cases it “didn’t meet the standards we set for ourselves”, as outlined in the report by law firm Clifford Chance commissioned by RBS into the unit in 2014.
Asked whether the bank anticipated having to pay out compensation, Mr McEwan said: “We continue to wait on the FCA to see what it comes out with.”
Danny Cox at stockbroker Hargreaves Lansdown said the provisions RBS has had to make for conduct charges are “pretty horrible”. While suggesting the performance of the core bank had improved, he said the “elephant in the room” for RBS was uncertainty over the size of the settlement it could be forced to pay the US Department of Justice over the mis-selling mortgage-backed securities.
Meanwhile, the bank reiterated there was no prospect of meeting next year’s deadline for selling its Williams & Glyn branches, ordered by the European Union as a condition of its £45bn bailout by the UK Government during the financial crisis. Mr McEwan said RBS continues to have dialogue with the Treasury and the EU to find a solution, noting that there are “no surprises” in the fact it will miss the deadline.
Clydesdale Bank owner CYBG emerged as a bidder for the branches this week, after Santander twice pulled out of the running. Restructuring costs of £301m related to Williams & Glyn were booked by RBS during the quarter, including £127m of costs arising from the decision to scrap plans to create a cloned banking platform for the branches.
Mr McEwan demurred when asked what would be the minimum price RBS would accept for the branches. While RBS chief financial officer Ewen Stevenson insisted an “attractive price” would be secured, Mr Cox said RBS could be “forced to sell at a bargain price” because “everyone knows they are a forced seller”.
Mr McEwan said: “We’ve said that 2015 and 2016 would be noisy as we work through legacy issues and transform this bank for customers. These results reflect that noise. Our core business results were good with a £1.3bn adjusted operating profit, our best quarter since 2014. The core business has now delivered on average over £1bn in adjusted operating profit for the last seven quarters”. IN some respects Ross McEwan is to be admired for his relentless optimism.
Presenting Royal Bank of Scotland’s third-quarter results yesterday, the New Zealander was at pains to highlight the underlying strength of the “core” bank.
Taxpayer controlled RBS has delivered, on average, £1 billion of adjusted operating profits for the last seven quarters, he said, with the latest quarter its best since 2014.
Mr McEwan remains upbeat despite having to present a series of eye-watering losses (not to mention close hundreds of branches and cut thousands of jobs), since becoming chief executive in 2013.
Yet no amount of spin can alter the fact the outlook continues to be bleak for the bank. RBS remains hamstrung by conduct, litigation and restructuring charges, which between them contributed to the massive third quarter loss it posted yesterday.
Worryingly for UK taxpayers, who bailed out RBS, there is plenty more to come. Like Deutsche Bank, RBS faces a potentially massive fine for mis-selling mortgagebacked securities in the US. It is facing court action by shareholders over its 2008 rights issue, and a potential claim from businesses that allege they were mistreated by the bank’s global restructuring group.
Mr McEwan has long maintained the bank’s 2015 and 2016 results would be defined by the “noise” from conduct and litigation issues. Sadly for him, and the UK public, the volume is not likely to be turned down any time soon.