RBS putting jigsaw back together despite DOJ fine overhang
Comment Martin Flanagan
Athird successive quarter of profits for Royal Bank of Scotland suggests the still taxpayer majority-owned bank is clearly on the right track after nine years of losses since the financial crash.
Of course, if the US department of justice levies an expected mammoth fine on RBS before the end of this year on the bank’s mis-selling of toxic mortgage-related securities in the run-up to the crisis then all bets are off. It is virtually certain any such fine would tumble the bank into a tenth year of losses. But it would not alter the direction of travel
That remaining burden of legacy conduct doesn’t obscure RBS chief executive Ross Mcewan’s deliverance of what is in his gift, a solid underlying performance, in not the most conducive UK economic environment.
Income is up, costs are down, the bank’s core operations are delivering robust earnings, and the capital cushions backing its loanbook (15 per cent currently) are of an order unknown in the gung-ho, balance sheet-lite days of Fred Goodwin.
Across the group’s personal and business banking, and commercial and private banking franchises, net lending and advances are 3.6 per cent higher than in the same quarter last year.
It is not that RBS is a stellar turn in the sector as far as organic growth is concerned. But after the many years of losses and palpable public relations pain, a “reasonable” performance takes on an unusual cachet. For RBS, normality is not pedestrian, it is good.
Of course, the state still owns more than 70 per cent of the lender (84 per cent at the peak), and a restoration of dividends and perhaps some share buybacks still lay tantalisingly beyond the bank’s immediate horizon. And, despite dismissing serious allegations, the Financial Conduct Authority is still looking at the group’s treatment of small businesses in its nowdisbanded Global Restructuring Group (GRG), and RBS also paid out £33 million this week to settle a US criminal probe that accused its traders of lying to customers over bond prices.
But despite the remaining legacy “noise” around the past few quarters of profitability, the market can see the positive underlying financial momentum. RBS is not over the finishing line, but it is a decent staging post for now.