Royal Bank of Scotland will make its eighth annual loss in a row after unveiling another multibillion-pound set of write-offs, charges and pension contributions.
The total of the hits the taxpayer-owned bank announced adds up to £6.7bn. The provisions included an extra $2.2bn (£1.5bn) to cover the mis-selling of mortgage-backed securities to US investors plus another £500m to cover the cost of compensating people mis-sold payment protection insurance; £498m is being written down on the value of the RBS’s private banking business, and the bank has also agreed with the trustees of its 220,000 member pension fund to accelerate extra payments due through to 2023 into one lump sum of £4.2bn this quarter.
The US provision is based on recent settlements by rival banks with the Federal Housing Finance Agency and takes the total set aside to £3.8bn. More could be needed to cover penalties from the Department of Justice or US attorneys general.
There was also no update on a pending regulatory report on the activities of RBS’s Global Restructuring Group that dealt with financially strained borrowers. By quantifying the damages, RBS might make the job of selling further tranches of Government-owned shares into the market easier.
The bank said it believed its PPI provisions should see it through to the proposed time bar in 2018 that is currently being consulted upon by the Financial Conduct Authority. RBS has racked up £4.3bn of losses through that affair.
Despite the provisions’ scale, the market took a relatively relaxed view. The shares fell only slightly on the day, down 5.2p to 255.7p.
Its chief executive, Ross McEwan, said: “We are now in phase two of cleaning up and we will move into the third phase as a much fairer bank which provides decent returns to our shareholders.” He said the timing of any future sales was “in the hands of the Chancellor” and his advisers at UK Financial Investments.
“I am determined to put the issues of the past behind us and make sure RBS is a safer stronger bank,” he added.
Investec’s analyst Ian Gordon said the provisions were “part incremental” and “part acceleration”. But he retained his buy rating on the shares and opined that even after the hit there was still “ample scope for a substantial share buyback in 2017”.
Gary Greenwood, at Shore Capital, said RBS had the capital strength to deal with such knocks. “While such headlines are disappointing they are not necessarily unexpected… [It] had approximately £8bn of surplus capital on its balance sheet at the end of September 2015.”
The Treasury sold a 5.4 per cent stake in RBS last August at 330p per share against an average cost to the taxpayer of 500p. RBS’s extra charge for PPI mis-selling was matched by Santander UK. The Spanish owned bank increased its provisions by £450m; pre-tax profits fell 4 per cent in 2015 to £1.34bn.