The third quarter loss for RBS, which is 73 per cent owned by taxpayers, is down from a profit of £1.1 billion the year before.
New chairman Sir Howard Davies, who joined the bank in July, told The Times that the bank faces several large obstacles preventing it from full recovery, including a looming US legal settlement and the investigation of its treatment of small businesses. He added the ongoing uncertainty about banks’ final payments for payment protection insurance claims was another factor hampering RBS.
RBS also warned that future costs relating to litigation and past misconduct could be substantially higher than expected. The bank has already set aside £4.5 billion to cover regulatory and legal actions, including £2.4 billion for litigation.
However, it faces a possible bill of about £8 billion that could dwarf that reserve from an investigation by authorities in the United States into claims it misled investors in mortgage-backed securities.
Resolution of the issue is seen by investors as the single biggest problem for RBS due to the uncertainty of the final sum involved. RBS hopes to settle the matter in the next few months.
Ross McEwan, RBS’s chief executive, added that the bank hopes to resolve the investigation into allegations that it mistreated thousands of business customers soon. The Financial Conduct Authority is investigating and may deliver its report by December.
The bank delivered stronger than expected attributable profit of £952 million, driven by a £1.1 billion pound gain relating to the sale of its US business, Citizens. Those gains will continue in the future, after the bank announced late yesterday plans to float its remaining 21 per cent holding in the business, which is worth £1.8 billion.
RBS’s common equity Tier 1 ratio, a key measure of its financial strength, improved by 40 basis points to 12.7 per cent and RBS said it would improve further to 16.2 per cent following the sale of Citizens. That would make it the most well-capitalised major bank in Britain.
Sandy Chen, an analyst at Cenkos Securities, said: “I think the technical term for this is “bloody strong capital” – in other words, by the time of the 2015 annual results, we’d expect a clamour for special dividends and/or share buybacks.”
RBS stuck to guidance that it would restart dividends in the Spring of 2017, once the US litigation issues were resolved and it had recorded two years of strong results in the Bank of England’s stress tests.
The govermment sold its first tranche of RBS shares in August after the bank pleased investors with strong results. There could be further sales in institutional investors before Christmas but an offer to retail investors is expected to be at least a year away.
