Royal Bank of Scotland losses more than treble to £7bn

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Royal Bank of Scotland has reported a £7bn annual loss as past problems continue to dog its performance.

The deficit is more than treble 2015’s loss of £2bn. It is the ninth year in a row RBS has failed to make a profit. The loss came as the bank set aside more money to deal with legal action in the US and its abandoned attempt to spin off its Williams & Glyn business. RBS plans to cut costs by £2bn over the next four years, which will mean job cuts and further branch closures. Chief executive Ross McEwan told the BBC the cost cuts were “huge, and unfortunately there will be job losses amongst that”. “Branches have been closing and will continue to close. The shape of a branch is changing, and what people do in a branch is changing,” he added. The bank – which is 72%-government owned – has racked up more than £50bn of losses since the £45.5bn taxpayer bailout during the financial crisis.

In the bank’s results statement, Mr McEwan said: “The bottom-line loss we have reported today is, of course, disappointing but, given the scale of the legacy issues we worked through in 2016, it should not come as a surprise. “These costs are a stark reminder of what happens to a bank when things go wrong and you lose focus on the customer, as this bank did before the financial crisis.” A big chunk of RBS’s loss in 2016 – which was more than triple the previous year’s loss of £2bn – was down to it setting aside £5.9bn for fines and legal costs.

The US Department of Justice is pursuing the bank over the sale of mortgage-backed securities prior to the 2008 financial crisis. RBS has also had to cover legal costs associated with payment protection insurance (PPI) mis-selling. The bank’s 2016 losses included a £2.1bn charge for restructuring costs. It also paid £1.2bn to the Treasury in dividends. However, Mr McEwan said he expected RBS to return to profit by the end of 2018, and pointed out that when one-off charges were stripped out, the core business of the bank was making money. “We made good progress throughout 2016 against our strategy. Our core business generated £4.2bn in adjusted pre-tax operating profit for the year,” he said. “This bank has great potential. We believe that by going further on cost reduction and faster on digital transformation we will deliver a simpler, safer and even more customer-focused bank.”

To get the bank into profitability, Mr McEwan told the BBC that the bank needed to resolve its US legal issues and the question of its Williams & Glyn unit, which lends to small and medium-sized businesses. The European Union ordered RBS to sell the unit by the end of 2017 to address competition concerns, but last year RBS failed to sell the business to Santander and talks with Clydesdale Bank failed. Instead, RBS and the government have suggested the bank gives £750m – which the bank has set aside – towards initiatives designed to boost competition in UK business banking. Richard Hunter, head of research at Wilson King Investment Management, said: “RBS remains the ‘jam tomorrow’ bank after revealing another set of ugly numbers which underline the scale of the issues it continues to face. “The eye-watering costs associated with the bank’s ongoing litigation and conduct fines are the main culprit for the performance, whilst the uncertainty around the Williams & Glyn business, as well as the need for a radical change to the middle and back-office restructure, are further challenges.”


RBS puts aside further £3.1bn for US mortgages fine

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Royal Bank of Scotland has set aside a further $3.8bn (£3.1bn) to cover fines in the US, the bank has said.

The provision is for an expected penalty over the sale of financial products linked to risky mortgages before the 2008 financial crisis. RBS, which is 72% state-owned, has now put £6.7bn aside to cover litigation by the US Department of Justice (DoJ). It means the bank is set to report a loss for 2016, the ninth year in a row that RBS has lost money. Chief executive Ross McEwan has been trying to end RBS’s legal wrangles so that the government can sell its stake in the bank, which was the result of a £45.5bn bailout during the financial crisis.

Ministers have shelved plans to sell further shares in the lender, in part because of uncertainty over the scale of the potential DoJ fine. In a statement, Mr McEwan said: “Putting our legacy litigation issues behind us, including those relating to US residential mortgage-backed securities, remains a key part of our strategy. “It is our priority to seek the best outcome for our shareholders, customers and employees.”

Uncertain outcome

RBS’s potential US penalty could fall anywhere between $12bn and $20bn, experts say. It remains to be seen whether the new US administration takes a tougher or more lenient approach to misconduct by European banks. RBS said the “duration and outcome” of the investigations into its mortgage selling activities before 2008 were uncertain – including whether a settlement with the Department of Justice (DoJ) could be reached. It also said that “further substantial additional provisions and costs may be recognised” and that other “adverse consequences may occur”. Most of the big banks have faced litigation over claims they mis-sold toxic mortgage-backed bonds in the run-up to the financial crash. Credit Suisse and Deutsche Bank agreed to pay $5.3bn and $7.2bn to settle their respective mis-selling cases in January. The DoJ is suing Barclays for alleged mortgage securities fraud after the bank walked away from negotiations in December.


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