RBS Plummets as Bank Pushes Out Dividend After Annual Losses
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Bank says payouts likely later than first quarter of 2017
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Misconduct charges drove 1.98 billion-pound annual loss
Royal Bank of Scotland Group Plc said it would take longer than originally planned to resume shareholder payouts after reporting its eighth consecutive annual loss, driven by costs for past misconduct. The shares dropped the most since 2012.
The net loss narrowed to 1.98 billion pounds ($2.77 billion) in 2015 from 3.47 billion pounds a year earlier, the Edinburgh-based lender said in a statement on Friday. Pretax profit excluding conduct and litigation charges and restructuring costs fell about 28 percent to 4.41 billion pounds, missing the 4.45 billion-pound average estimate in a company-compiled survey of seven analysts. RBS last posted net income in 2007.
Chief Executive Officer Ross McEwan, 58, is facing a pivotal year in his efforts to resume dividends for the first time since the bank’s 45.5 billion-pound taxpayer-funded bailout in 2008. The bank said Friday outstanding issues, including a potential settlement with U.S. authorities over sales of mortgage-backed securities, mean it’s now “more likely that capital distributions will resume later” than his original target of the first quarter of 2017.
“Clearly there are big conduct charges we still face, not least in relation to U.S. mortgage-backed securities,” McEwan said on a conference call with journalists. “I look forward to the day when we can put these issues behind us.”
The lender’s shares dropped 10 percent at 8:08 a.m. in London. That’s the biggest intraday decline since June 2012.
The bank cut risk-weighted assets by 113 billion pounds to 243 billion pounds, driven by the disposal of its U.S. consumer bank Citizens Financial Group Inc. along with shedding assets at its securities unit and completing the run-down of its bad bank a year ahead of schedule. Operating costs other than litigation and restructuring fell by more than 1 billion pounds and the bank said it aims to shave another 800 million pounds of expenses in 2016.
Core Business
RBS is “becoming the bank we said we wanted to be,” generating about 90 percent of revenue in the U.K. and Ireland as it exits operations around the world, McEwan said.
At the commercial and private banking division, one of the core businesses of the reshaped RBS, total revenue dropped 2.7 percent to 4.27 billion pounds.
The company said it intends to pay the outstanding 1.2 billion pounds it must give the U.K. government to remove the state’s rights to preferential dividends in the first half of 2016. The common equity Tier 1 ratio, a measure of financial strength, was 15.5 percent at the end of 2015. McEwan wants to eventually pay out capital that surpasses a CET1 ratio of 13 percent.
Last month, the bank announced about 3.6 billion pounds of writedowns and charges recognized in the fourth quarter, helping to push the bank into another loss.
That included a 500 million-pound charge on mis-sold payment-protection insurance, in the most expensive conduct scandal in the history of British banking. The bank said it may continue to face higher claims volumes for longer than it previously expected. Lloyds Banking Group Plc, the other major British lender bailed out in the crisis, said Thursday that it may have reached the end of PPI charges that cost it 4 billion pounds last year and 16 billion pounds in total.
Government Sale
RBS also took a 1.5 billion-pound provision for mortgage-backed securities litigation and a 498 million-pound goodwill impairment on its private banking business, contributing to the annual loss.
The bank is still 73 percent owned by the British taxpayer. Chancellor of the Exchequer George Osborne’s plan to return the bank to private hands has been delayed by this year’s bank stock selloff across Europe, which has pushed RBS down 19 percent. After a 2.1 billion-pound share sale in August, the first disposal since the bailout, the government in November postponed plans for more sales to this year.
Source: Bloomberg
