PPI scandal wipes out Royal Bank of Scotland’s profits

rbs profit

Royal Bank of Scotland swung to a loss in the third quarter after making a fresh £900 million provision for misselling payment protection insurance.

Its pared-down investment bank also dragged down the group, posting a loss of £193 million loss after core income fell by 44 per cent.

Overall the bank made a pretax loss of £8 million in the three months to September 30, compared to a pretax profit of £961 million in the same period last year.

Its shares fell 3 per cent, or 7.3p, in early trading to 226.5p. They have gained 25 per cent in recent weeks on receding fears of a hard Brexit.

The state-controlled lender warned that indicators about the state of the economy had deteriorated since June.

Katie Murray, RBS’s chief financial officer, said that “things are still moving along” but that there were some concerning signs. Large companies are holding back on investment and impairments had risen, partly driven by a few large individual failures, she said.

The retail and business banking divisions grew net loans to customers by 3.2 per cent on an annualised basis for the year to date, exceeding its 2 per cent to 3 per cent target.

Ms Murray said that this showed a “strong story of growth” by the bank. UK lenders are struggling to boost their lending, as retail and business customers are wary about borrowing against a backdrop of Brexit uncertainty.

RBS is set for a change of leadership next week, when Alison Rose takes over as chief executive from Ross McEwan, 62.

Ms Rose, 49, will be the first woman to lead one of Britain’s big banks. She is a long-time RBS insider, having worked extensively in corporate and investment banking. Ms Murray said that Ms Rose would set out her vision for the bank in February.

One of her biggest tasks will be to try to get the bank to a position where the government can sell some or all of its remaining 62 per cent stake. RBS has been majority-owned by taxpayers since it was bailed out with a £45 billion injection a decade ago.

RBS had warned in September that it would take a new provision of between £600 million and £900 million for PPI, owing to the flood of claims in advance of the August 29 deadline. Other big lenders did the same, taking the total cost for the scandal to more than £50 billion.

Ian Gordon, an analyst at Investec, said that RBS’s results made for “grim reading”, due in large part to the “shocking” performance by NatWest Markets and a PPI charge at the higher end of the bank’s guidance. That would have a “negative read for sector peers”, he added.