Royal Bank of Scotland Group reported its first annual profit in a decade on Friday, but the milestone was bitter-sweet for the British bank which had wanted to resolve a multibillion-dollar misconduct case in 2017.
The bank is hopeful the case with the US Department of Justice (DoJ) for mis-selling toxic mortgage backed securities can be settled in the coming months, RBS chairman Howard Davies said.
“That is our hope,” Davies said at a presentation for journalists. “We continue to do whatever we can to try to advance a settlement but we do not have any news to offer... today on that.”
RBS shares were down 4.2 per cent at 270.2p by Friday afternoon on the lack of information about a case which some analysts estimate could mean a charge of up to $12 billion.
The bank’s £752 million (€854 million) profit beat a company-provided average of analyst forecasts for a £592 million loss, with a number having factored in a provision for the DoJ fine.
Settlement
Chief executive Ross McEwan said the DoJ settlement was out of the bank’s control but it could now begin to think about resuming dividends or buying back shares nearly a decade on from its £45.5 billion state bailout during the financial crisis.
“With many of our legacy issues behind us, the investment case for this bank is much clearer and the prospect of returning any excess capital to shareholders is getting closer,” he said.
McEwan, a New Zealander who has run RBS since 2013, later told reporters that he plans to stay at the bank until it has settled the US case and resumed payouts, which would likely take the form of a small dividend initially.
The DOJ issue weighs on RBS’s share price and complicates the government’s plan to sell down its 71 per cent stake.
RBS said it would invest £1.5 billion more than previously forecast in the next two years, about £800 million of which will go towards digitisation. “Investors are likely to be frustrated by the £1.5 billion of incremental restructuring costs needed to deliver accelerated investment spend,” Joe Dickerson, an analyst at Jefferies who has a ‘buy’ rating on RBS shares, said. RBS said it had beaten its overall cost reduction target of £750 million in 2017, taking out £810 million.
- Reuters
