RBS plunges to a £1bn loss on bailout-era costs


Although bosses insisted the bank was making progress, analysts called its sustained losses and the latest delay to spinning off the Williams & Glyn bank “farcical”, reports The Telegraph.

RBS paid the Government £1.2bn to remove the burdensome Dividend Access Share, which prevented it from paying dividends to investors. However, RBS is still struggling to be profitable even without the onerous one-off charges it has incurred.

Key hurdles to returning capital to shareholders include a pending multi-billion dollar fine in the US relating to the sale of toxic mortgage-backed securities before the financial crisis.

RBS also needs to spin off Williams & Glyn, a new bank which it was told to dispose of under the terms of its bailout.

However, that has proved difficult, in part because of the huge technological challenges of setting up a new IT system at the bank. Yesterday RBS warned it was likely to miss a regulatory deadline of the end of 2017, potentially incurring more fines.

“This is the most incredibly complicated project that I have seen in banking anywhere in the world, taking a complete range of systems out of a bank and moving the customer base so on the day you start you have to have two million customers absolutely served,” said chief executive Ross McEwan.

He said 50pc to 80pc of W&G’s business functions were now up and running, with all of its staff on their own payroll and human resources systems, but that the IT part of the puzzle was proving difficult.

Carving out W&G cost RBS another £158m in the first quarter, roughly in line with the £630m restructuring costs over the whole of 2015.

Mr McEwan said he was investigating “alternative means” of spinning off the unit, but declined to say what they may be.

He has not yet discussed the potential failure to hit the deadline with the Treasury or the European Commission, which would determine any financial penalty and any alteration of the deadline.

RBS’ revenues fell by 13pc to £3.1bn in the first quarter, while operating costs dropped by a third to £2.4bn, largely because of a fall in litigation costs.

As a result, underlying operating profits, which exclude one-off costs, rose to £421m in the quarter, up from just £37m a year ago.

RBS said its income was “stable” in its core retail and small business banking units. These are the divisions that will make up the vast majority of the bank once the restructuring is over.

Those core parts of the bank are growing. Lending to households and small businesses increased by 15pc year-on-year, with mortgage applications up 61pc. As a result gross mortgage lending almost doubled to £7bn in the quarter.

However, the corporate and investment banking arm reported adjusted income of £165m, down 40pc year-on-year because choppy market conditions in the first weeks of 2016 slashed demand from clients.

“This is another year of heavy lifting and there will continue to be a lot of noise in our results, but underneath that noise you will see that we are on track and delivering on our plan,” said Mr McEwan, noting that the core of the bank was making a return on equity of 10.9pc.

“We are building a solidly performing, profitable bank doing great things for customers and returning value to shareholders.”

Analysts noted that even the underlying profit of £421m was lower than forecast; consensus predictions had put it at £804m.

“We cannot hide our disappointment with both the results and the announcement of the ongoing delay to the divestment and separation of Williams & Glyn, which has frankly now become farcical, to say the least,” said Gary Greenwood at Shore Capital.

“Our positive recommendation had been predicated on the group overcoming most of the issues to allow a resumption of capital returns and dividend payments to shareholders during 2016, including addressing Williams & Glyn and settling outstanding RMBS claims in the US. With the timeframe having significantly slipped, our enthusiasm for a positive stance on the shares has been severely tested.”